Finance · business glossary
What is Burn rate?
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
definition
How fast a business is spending its cash reserves each month, typically used when a business is running at a loss funded by savings or investment.
Burn rate explained
Burn rate is how quickly a business uses up its cash each month. Gross burn is total monthly spending; net burn is spending minus income.
formula
Net burn = Monthly cash out − Monthly cash in
example
A start-up spending ₹15 lakh a month while earning ₹6 lakh has a net burn of ₹9 lakh a month.
why it matters
It determines runway and how urgently a business must raise money or reach profitability.
common mistake
Ignoring one-off and annual payments that make some months burn much faster.
Frequently asked questions
What is Burn rate?
How fast a business is spending its cash reserves each month, typically used when a business is running at a loss funded by savings or investment. Burn rate is how quickly a business uses up its cash each month. Gross burn is total monthly spending; net burn is spending minus income.
How do you calculate Burn rate?
Net burn = Monthly cash out − Monthly cash in. A start-up spending ₹15 lakh a month while earning ₹6 lakh has a net burn of ₹9 lakh a month.
Why does Burn rate matter?
It determines runway and how urgently a business must raise money or reach profitability.
What is a common mistake with Burn rate?
Ignoring one-off and annual payments that make some months burn much faster.
Related terms
Runway
How many months a business can keep operating at its current burn rate before running out of cash.
Cash flow
The actual movement of money in and out of a business, which can differ sharply from reported profit if customers pay late or inventory ties up cash.
Valuation
An estimate of what a whole business is worth, used when raising investment, selling, or bringing in a partner.