Net burn is cash paid out minus cash received from customers over the same period. Use a normal monthly rate to estimate runway, while keeping one-off cash movements visible. Below, three months of bank statements are cleaned up to show €24,000 of monthly net burn and why the raw balances mislead.
Calculate it now: the burn rate calculator shows gross burn, net burn and runway side by side.
What is the burn rate formula?
Burn rate is the cash a company uses up in a month, and it comes in two forms. Gross burn is all cash out. Net burn is cash out minus cash in from customers. Dividing the cash in the bank by net burn gives runway in months.
gross burn = all cash out in a month net burn = cash out - cash in from customers runway = cash in the bank / net burn
Net burn tells you how fast the balance is falling, and it is the one you divide cash by to get runway, the number that decides when you raise, cut or hire.
Gross burn tells you what the company costs to exist. Divide cash by gross burn and you get the worst case: how long you would last if every customer stopped paying tomorrow. A company with high revenue and a small net burn can still have a large gross burn, and that gap is its exposure to losing customers. Gross burn times 12 is your expense run rate.
How to calculate burn rate: a worked example
To calculate burn rate, subtract monthly cash in from customers from monthly cash out. A seven-person B2B software company that spends €52,000 a month and collects €28,000 from customers has a net burn of €24,000. With €312,000 in the bank, that is 13 months of runway.
- Gross burn is €52,000.
- Net burn is €52,000 - €28,000 = €24,000.
- Runway is €312,000 / €24,000 = 13 months.
- In the worst case, with revenue gone, €312,000 / €52,000 = 6 months.
The bank statement does not hand you those two inputs. The rest of this guide shows where €52,000 and €28,000 come from.
How do you get burn rate from bank statements?
To get burn rate from a bank statement, export each month and add up cash out and cash in. Raw totals mislead, because investor money, annual bills and one-off purchases land in single months. The founder of the example company exports June, July and August and adds up each month.
| June | July | August | |
|---|---|---|---|
| Cash out | €51,500 | €62,000 | €51,500 |
| Cash in | €176,800 | €41,200 | €28,800 |
| Change in balance | +€125,300 | -€20,800 | -€22,700 |
Read straight off the statement, this company made money in June, and the three-month average says the balance grows by about €27,300 a month. The founder knows that is wrong. A balance chart in a banking app has the same flaw, though, and plenty of runway numbers are built on one.
Four cleanups before the number means anything
Four cleanups turn a raw bank-statement total into a usable burn figure: take out money that is not revenue, spread the annual bills, pull out true one-offs, and count prepaid revenue at its monthly rate. Each one explains a specific swing in the June to August table.
Take out money that is not revenue
June's €176,800 includes €150,000 from a convertible note. Equity, loans and transfers between your own accounts raise the balance, so they belong in the cash you divide into, never in burn. August includes a €2,000 tax refund. It is real cash but it does not come from customers and will not repeat, so it goes too.
Spread the annual bills
July's €62,000 includes €6,000 of yearly insurance and an annual software plan. Both come back next July. In the run rate they count as €500 a month (€6,000 divided by 12), and July stops looking like a bad month.
Pull out true one-offs, and be suspicious of them
July also has €4,500 of laptops for two new hires. That cash is gone, and the balance already shows it, but it will not leave again every month. One such item in three months is a fair exclusion. If you find a different "one-off" every month, you have a line item, and it belongs in the run rate as an allowance.
Count prepaid revenue at its monthly rate
In July one customer paid a year in advance: €14,400. Counting all of it as July revenue makes July's burn look €13,200 better than it is. For the run rate, count €1,200 a month. The lump is already sitting in the balance, and whether it comes back next July depends on a renewal you have not won yet.
The cleaned-up figure
After the four cleanups, the example company shows the same run rate in all three months: €52,000 of gross burn, €28,000 of cash in from customers and a net burn of €24,000. The table shows how each figure is built from recurring costs, spread annual bills and spread prepayments.
| Monthly run rate | Amount |
|---|---|
| Recurring costs (team including employer costs, rent, software, cloud, marketing) | €51,500 |
| Annual bills spread (€6,000 / 12) | €500 |
| Gross burn | €52,000 |
| Monthly-paying customers | €26,800 |
| Annual prepayment spread (€14,400 / 12) | €1,200 |
| Cash in from customers | €28,000 |
| Net burn | €24,000 |
All three months clean up to the same €24,000. Every swing in the raw table came from the four items above.
What is cash burn rate, and how is it different from your accounting loss?
Cash burn rate is burn counted on a cash basis: a cost counts in the month the money leaves your account, and a customer payment counts in the month it arrives. Your accountant's monthly loss is usually built on the accrual side, while your bank balance is built on the cash side, and it is the balance that runs out.
The four cleanups above are where the two numbers part ways in practice. The €4,500 of laptops is a cash outflow of €4,500 in July, where an accounting loss would spread it over the years the laptops last. A contractor invoice dated August and paid in September is an August cost on an accrual basis and a September cash outflow. A customer invoiced in August who pays in October shows up in the accounting profit in August and in cash burn in October, which is how a company can be profitable on paper and short of cash.
Neither number is wrong. The accounting loss tells you whether the business model works, and cash burn tells you how long you can keep running it. Net burn is the cash version with customer payments subtracted, which is why it is what you divide cash by for runway. A separate guide covers cash vs accrual accounting, including the IRS and HMRC rules on who must use which.
Where do founders go wrong when calculating burn rate?
Most burn figures are off because of what they leave out. If the founders are paying themselves little or nothing, today's burn is lower than the company's real cost, and it jumps the month they start paying themselves properly. Burn also describes this month only, so a hire who signed last week and starts in November is not in it.
Salaries in an offer letter understate what a person costs, because employer taxes and contributions come on top; price people at what a hire really costs. Next quarter's price increase is not in the figure either. For the date the money runs out, put those on a calendar, as in when will you run out of cash.
The other mistake is timing. A single month is noisy even after cleanup, because payment dates drift. Recompute monthly, and look at the three-month average next to the latest month. If the latest month is well above the average, find out why before you trust the average.
What to do with the number
Net burn feeds almost every money decision a founder makes. It sets how much runway a round should buy, and it is the numerator in the burn multiple, which investors use to judge whether your burn buys enough growth. Gross burn is the list you work from when you need to cut costs without cutting muscle.
To read net burn, runway and MRR together, put them on one founder dashboard and go through them in a monthly review. The calculator linked above shows gross burn, net burn and runway if you want to check your own figures first.
In Plainhub, the four cleanups are part of how you record money. Every entry is either recurring or one-off: recurring entries set your burn, and one-off entries change the cash balance without touching it. Costs have no yearly frequency, so a yearly bill goes in as its monthly equivalent. You type the entries yourself instead of connecting a bank, so an investor transfer never gets mistaken for a good month.
