How to calculate burn rate (the right way!)

Burn rate measures how quickly a business spends cash and is especially important for startups and investors assessing financial sustainability, fundraising needs, and growth plans. Gross burn rate is average monthly operating expenses without considering revenue, while net burn rate measures the monthly reduction in cash after revenue is accounted for and is used to calculate cash runway by dividing current cash reserves by net monthly burn. Companies should assess burn over periods such as a quarter or longer to smooth monthly fluctuations, balancing investment in growth with enough reserves to manage unexpected events and reach the next funding round; one cited recommendation is an 18-month runway. Improving net burn rate generally involves increasing revenue or reducing costs through lower cost of goods sold, stronger supplier and logistics negotiations, timely invoicing and payment collection, and more efficient financial and technology infrastructure.

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