Burn rate is the cash your company loses in a month. Gross burn is everything that leaves the bank, net burn is what leaves minus what customers pay you, and net burn is the one you divide your cash by to get runway. The formula takes one line. Getting a figure you would bet the company on out of a bank statement full of investor money, annual bills and one-off purchases is the hard part, so this guide takes three months of one company's statements and cleans them up step by step.
Two numbers, two jobs
gross burn = all cash out in a month net burn = cash out - cash in from customers
Net burn tells you how fast the balance is falling. Divide cash by it and you get your runway in months, which is 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.
Start with three months of statements
The example is a seven-person B2B software company. The founder exports June, July and August from the bank 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
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
| 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.
With €312,000 in the bank at the end of August, the company has 13 months of runway at a net burn of €24,000. At a gross burn of €52,000, it has 6 months if revenue vanished.
Where founders still get it wrong
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. 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. Burn also describes this month only. A hire who signed last week and starts in November is not in it, and neither is next quarter's price increase. 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. If you want to check your own figures, the burn rate calculator shows gross burn, net burn and runway side by side.
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. You type the entries yourself instead of connecting a bank, so an investor transfer never gets mistaken for a good month.