Burn rate is most commonly discussed in the startup world, but it applies to any business running a cash deficit. If you have $60,000 in the bank and you're spending $15,000 more than you're bringing in each month, your burn rate is $15,000 and you have four months of runway.
Gross burn vs. net burn
Gross burn is total monthly spending. Net burn is the difference between what you spend and what you bring in. For a profitable business, net burn is negative — meaning you're adding to cash, not depleting it.
When burn rate matters most
Burn rate becomes critical when you're in a growth phase, recovering from a slow period, or running a seasonal business. Even healthy businesses have moments where outflow temporarily exceeds inflow — knowing your burn rate gives you time to adjust before it becomes a crisis.
Burn rate and core capital
Greg Crabtree's Simple Numbers framework recommends maintaining two months of operating expenses in cash reserves — your core capital target. That buffer exists precisely to absorb periods of elevated burn without destabilizing the business.
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