Net Burn Rate

Net burn rate is the cash consumed over a reporting period after included operating cash inflows offset included outflows. It is commonly expressed as a positive amount when the company uses cash and a negative amount when it generates cash.

Example

A company pays $110,000 in operating cash costs and collects $82,000 from customers in a month. Net burn is $28,000. A $500,000 equity investment raises the cash balance but should not be counted as customer-generated operating inflow.

How to use it

Use net burn to estimate runway and track whether growth consumes more or less cash. In the example, examine planned hires and renewal timing before dividing cash by $28,000. Cash-generating businesses need a forward forecast too, even when historical net burn is negative.

Specify whether you include capital expenditure and other nonoperating payments. Collections rather than recognized revenue belong in a cash burn calculation. Annual customer prepayments may temporarily lower net burn; do not assume the unusually strong collection month will repeat every month.

Further reading: Stripe on Net Burn Rate.

Related: Gross burn rate, Burn multiple.