How to calculate burn rate, step by step
The burn rate is one subtraction and one division that answers one question: how fast is the business spending its cash? Founders ask it first, because it tells them how long the money in the bank will last before they need more. The burn rate is the starting cash minus the ending cash, divided by the months — the cash change over the period, spread across each month. The answer is a monthly spend: a burn of $25,000.00 a month means the cash falls by $25,000.00 every month.
The formula is burn rate = (starting cash − ending cash) ÷ months. Starting cash is the cash in the bank at the start of the period — the opening balance, all in one currency. Ending cash is the cash left at the end of the period — the closing balance, from the same bank accounts. Months is how many months the period covers — six months, twelve months, or any stretch you can measure. All three figures come from the same accounts, in the same currency, or the burn is wrong before it starts.
The worked example, line by line. Step 1 — the starting cash: $500,000. Step 2 — the ending cash: $350,000. Step 3 — the cash change: $500,000 − $350,000 = $150,000. Step 4 — the division: $150,000 ÷ 6 = $25,000.00 a month. Step 5 — the meaning: $25,000.00 a month means the cash falls by $25,000.00 every month. Step 6 — the runway: $350,000 ÷ $25,000.00 = 14.00 months of cash left. Work it yourself in the burn rate calculator.
What the number means
A burn of $25,000.00 a month means the cash falls by $25,000.00 every month. A burn of $50,000.00 a month means the cash falls twice as fast, and a burn of $12,500.00 a month means it falls half as fast — the higher the burn, the shorter the runway. The runway is the ending cash divided by the burn: $350,000 ÷ $25,000.00 = 14.00 months. Fourteen months is the time the business has before the bank balance hits zero at the current spend — the time to raise more money, cut the spend, or start earning more than it spends.
What moves the burn
Starting cash moves it fastest in one direction: every extra dollar at the start adds one dollar divided by the months to the burn, so on 6 months each $6,000 of starting cash is worth exactly $1,000 a month. Ending cash moves it the other way: every dollar left at the end takes one dollar divided by the months off the burn, so ending with more cash always means a lower burn. Months move it in a curve, not a straight line: the burn is the cash change divided by the months, so doubling the months halves the burn, and halving the months doubles it. Spending less lowers the burn dollar for dollar, and stretching the period lowers it faster.
How much cash do you need to burn $30,000.00 a month?
The reverses tell you where the line sits. The smallest starting cash for the burn to reach $30,000.00 a month is $530,000 on $350,000 of ending cash over 6 months — at $530,000 the burn is exactly $30,000.00 a month. The largest ending cash for the burn to stay at or above $30,000.00 a month is $320,000 on $500,000 of starting cash over 6 months — at $320,000 the burn is exactly $30,000.00 a month. One dollar either way moves the burn across the line, and the displayed figure hides it — which is the trap the next section covers.
Traps to avoid
First, the rounding. The burn is displayed to two decimals, half-up. A burn that displays as $30,000.00 can sit below the line: $320,000.02 of ending cash gives 29,999.9967 — it displays as $30,000.00 but is below $30,000. A start of $529,999.98 gives the same 29,999.9967 — it displays as $30,000.00 but is below $30,000. Two cents of ending cash, or two cents of starting cash, is the difference between below the line and above it, and the displayed figure hides it. The calculator prints the unrounded burn so the rounding does not mislead you.
Second, the undefined case. If the months are 0, the burn is cash change ÷ zero — division by zero — and the burn is undefined. The calculator shows “undefined” with a note, never a number, never hidden. A period of zero months has no burn to measure, because there is no time for the cash to move.
Third, the negative and zero cases. If the ending cash is above the starting cash, the burn comes out negative — the business added cash instead of spending it — and there is no runway, because there is no burn. If the ending cash equals the starting cash, the burn is $0.00 a month — the cash did not move at all — and there is no runway either. The calculator shows both figures with notes, never hides them.
Frequently asked questions
How do I calculate burn rate?
Subtract the ending cash from the starting cash, then divide by the months. ($500,000 − $350,000) ÷ 6 = $25,000.00 a month. The starting cash is the cash at the start of the period, and the ending cash is the cash left at the end.
What does a $25,000.00 monthly burn mean?
The cash falls by $25,000.00 every month. At that spend the $350,000 left in the bank lasts 14.00 months — the runway is ending cash ÷ burn, $350,000 ÷ $25,000.00 = 14.00 months.
How much starting cash do I need for a $30,000.00 monthly burn?
$530,000 on $350,000 of ending cash over 6 months. At $530,000 the burn is exactly $30,000.00 a month. At $320,000 of ending cash on $500,000 of starting cash over 6 months, the burn is exactly $30,000.00 a month too.
Can the burn rate be negative?
Yes. If the ending cash is above the starting cash, the burn comes out negative — the business added cash instead of spending it — and there is no runway, because there is no burn.
What if the months are zero?
The burn is undefined. Cash change ÷ zero has no answer. The calculator shows “undefined” with a note, never a number.
What is the difference between burn rate and free cash flow?
One is monthly spend, the other is cash after capital spending. The burn rate divides the cash change by the months — how fast the cash is going. Free cash flow is operating cash flow minus capital spending — what the business keeps after investing. Work it out in the free cash flow calculator.