Burn Rate.

In plain English

Burn rate is the speed at which a business uses up its cash, usually measured per month. It matters most for new or growing businesses that are spending to grow before they earn enough to cover costs. Gross burn is your total monthly spending; net burn is spending minus any income, so it is the actual amount your bank balance drops each month. A high burn rate is not automatically bad if you have plenty of cash and a plan, but it is the number that sets how long you can keep going.

01Why it matters

Burn rate plus your cash balance tells you, in months, when the money runs out, which is the single most important deadline a young business has. Ignoring it is how founders get blindsided.

02The math, step by step

Your business has $24,000 in the bank. It earns $3,000 a month but spends $7,000 a month on rent, supplies, and contractors. Net burn is $7,000 minus $3,000, which is $4,000 a month. That means your $24,000 lasts about six months before you either raise income, cut spending, or run out.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT