Net Burn

Early-stage businesses often spend before their sales cover costs, and net burn puts a number on that cash gap. Start with actual cash movements: payroll, rent, supplier payments and marketing paid during the month are outflows, while customer collections are inflows.

Subtract inflows from outflows, so if a business pays $500,000 and collects $300,000, net burn is $200,000 for that month. Keep gross burn separate, since gross burn is total cash spent before offsetting receipts, so the same company has $500,000 of gross burn and $200,000 of net burn.

Decide what counts as operating cash, because investor funding, new loans or a sale of an asset should not be mistaken for repeatable customer receipts when evaluating business burn. Taxes and debt payments need clear treatment, as a cash forecast should capture payments when due even if a simple operating burn definition excludes financing flows, and reconciliations should be shown.

Cash is not revenue, and expense is not cash spending. A signed contract may produce accounting revenue while the customer has not yet paid, so net burn should reflect the collection timing, and depreciation reduces accounting profit without a current cash payment, while buying equipment may use cash before the full expense appears in profit.

Watch working capital too, because inventory purchased before sales and slow receivables can create cash burn even when orders are rising. Calculate on a consistent window, since a month with an annual insurance premium or a delayed customer payment can make one-period burn look unusual, so use a rolling view alongside the actual month.

Separate recurring and one-off spending, because a relocation or equipment project may deserve its own explanation but should not be erased from the cash balance. Look at trends, because falling net burn can come from higher collections, lower spending or timing shifts, and you should find out which before claiming a business improvement.

A negative calculated burn means operations generated more cash than they spent on the chosen definition, so label it as net cash generation instead of forcing the word burn. Compare with runway, which is often approximated as unrestricted available cash divided by monthly net burn: if cash is $2.4 million and net burn is $300,000 per month, simple runway is eight months.

That is a rough planning indicator, not a guaranteed survival date, since a changing burn rate, restricted cash or future obligations can shorten it, so build a forward cash forecast covering hiring, renewals, tax bills and customer payment dates. Check cash restrictions and keep the board and team honest: deposits held for customers or money earmarked under financing terms may not be freely available to pay routine bills, and a lower burn caused by deferring overdue supplier payments is not the same as a durable efficiency gain.

Review unit economics before cutting, because higher marketing spend may make sense if customer cohorts produce healthy contribution margin and repay acquisition costs in time, while reducing support or product quality may save cash now and harm retention later, and fundraising has a lead time, so a company should not wait until simple runway reaches zero to begin contingency planning. Stripe distinguishes gross and net burn using spending and inflows, and Allianz Trade explains the common runway approximation based on cash and monthly net burn, so for an owner net burn is a short statement about the operating cash gap to use together with balance, obligations and a realistic forecast.