Net Burn

Cash out minus cash in

Net burn is how much cash a company loses each month after revenue, total cash spent minus cash collected, and it is the true measure of how fast runway is being consumed. A company that spends 500,000 and collects 300,000 in a month has a net burn of 200,000. That is the number that actually depletes the bank account, which is why it, rather than total spending, governs how long the company can operate. Net burn is the honest read on the pace of cash consumption.

Net burn versus gross burn

The distinction is what revenue does to the picture.

- Gross burn: total cash spent, ignoring revenue. It measures the spending level. - Net burn: cash spent minus cash collected. It measures the actual cash loss.

A company with high gross burn but strong revenue can have modest net burn, and a company with low spending but no revenue can still burn meaningfully. For runway, net burn is the number that counts, because it reflects the real decline in the cash balance rather than the gross spending that revenue partly offsets.

Why it is the survival number

Net burn is the denominator of runway: cash runway is cash on hand divided by net burn, so a company with 2,000,000 in the bank burning 200,000 a month has about ten months. That equation makes net burn the most consequential operating number for a company not yet profitable, because every change to it moves the survival horizon. It can be improved from either side, growing revenue to raise cash in, or controlling costs to lower cash out, and the burn multiple relates net burn to growth to judge whether the burn is buying enough. Net burn also depends on the cash-timing realities that cash flow forecasting captures, since collected cash, not booked revenue, is what offsets the spend. A company that watches net burn and its runway knows exactly how much time it has to reach profitability or the next raise, which is the single most important thing an unprofitable company can know.