Finance
Burn Rate
The monthly net cash outflow of a business: how much cash leaves the bank each month after collections.
Burn rate is the diagnostic for businesses operating at a deficit, whether by choice (investing for growth) or by accident (margin compression). Computed as monthly cash inflows minus monthly cash outflows; a positive burn means cash is leaving.
Two flavors: gross burn (all monthly cash outflows, ignoring revenue) and net burn (outflows minus collections). Net burn is what determines runway.
Even cash-flow-positive SMBs benefit from tracking burn during seasonal troughs (Q1 for retail, summer for B2B) to spot trouble before it compounds.
Common pitfalls
- Computing burn on accrual revenue instead of collected cash overstates health
- Ignoring lumpy items (quarterly tax payments, annual insurance renewals, year-end bonuses); the actual cash hit is worse than the monthly average
- Not separating one-time burn (equipment purchase, settlement) from recurring burn
Related service
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