Burn Rate

Burn rate shows how quickly a start-up uses up its available cash, usually measured per month. It indicates how long the company can continue with its funds before fresh capital is needed. A high burn rate means that cash can run short quickly.

Two measures are distinguished: gross burn captures all monthly cash outflows, while net burn offsets business cash inflows. Proceeds from new financing rounds are not treated as reducing operating cash consumption. Net burn together with cash on hand gives the runway, meaning the number of months until the company runs out of money absent further financing. Because payments are lumpy, a three-month average adjusted for known one-off effects is normally used.

The metric is deliberately cash-based and therefore not identical to the accounting loss, since provisions, depreciation and accruals affect profit but not cash directly. Conversely, capital expenditure and the build-up of inventory or receivables consume cash without appearing in the result. Investors read the figure against progress: what matters is not absolute consumption but how much revenue growth, product maturity or customer access each euro buys, measured in efficiency terms as net new ARR divided by net burn. In practice the figure matters most in financing planning, because a new round takes several months of lead time and negotiating pressure rises the shorter the remaining runway.

For management a liability dimension is added, since illiquidity and over-indebtedness trigger filing duties under insolvency law. A breakdown by cost block helps in management, because personnel, marketing, infrastructure and external services can be adjusted at different speeds: marketing budgets can be steered at short notice, personnel costs only with lead time. This raises the question of how quickly a company could shift to a lower run rate in an emergency, which investors regularly request as a scenario. Development relative to headcount is also examined, since rising burn per employee needs to be assessed alongside growth and investment.