How fast does your income burn?

The number that determines a startup's survival

Burn rate is the amount of cash a business consumes per month to operate. For pre-revenue startups, it's almost the only financial metric that matters — determining how long the company has before additional funding is required. For small businesses generally, burn rate (or its negative counterpart, positive cash flow) defines whether the business is building a sustainable position or racing toward cash exhaustion. This calculator estimates burn rate and runway; the commentary below is about why the number matters more than revenue or profits in early-stage businesses.

Gross burn vs net burn

Two distinct burn calculations:

Gross burn: Total monthly cash expenses. Every bill, every salary, every cost the business pays. Measures total consumption.

Net burn: Gross burn minus revenue received. Measures actual cash decline in the bank account per month.

A startup with 100,000 monthly gross burn and 30,000 monthly revenue has 70,000 net burn — its bank balance declines by 70,000 per month. Net burn drives runway calculations. Gross burn is important for understanding cost structure independently of revenue volatility.

The runway calculation

Runway = Cash on hand / Net burn rate. 1,000,000 cash with 70,000 net burn provides 14.3 months runway. This is the central question of startup financial management: "how many months before we need more money?"

Target runway ranges by stage:
Pre-seed: 6-12 months. Often structured around hitting specific milestones before next raise.
Seed: 12-18 months. Enough time to hit product-market fit milestones.
Series A: 18-24 months. Enough time to prove commercial viability.
Series B+: 24+ months. Should be cashflow-positive or close to it.

Runway under 6 months triggers emergency financial management: either urgent fundraising, aggressive cost cuts, or wind-down decisions. Most professional investors won't meaningfully engage with fundraising talks if runway is under 4 months because the power balance is too unfavourable to the company.

The fundraising timing relationship

Professional fundraising takes 3-6 months from start to close. This means it helps to start fundraising with 6-12 months runway remaining to close a round before desperation sets. Starting too early means you're fundraising on incomplete milestones (weaker negotiating position on valuation). Starting too late means runway pressure forces suboptimal terms (lower valuation, worse investor rights). Professional startup CFOs time fundraising to close when the company has 9-12 months runway remaining — keeping 6-9 months runway buffer after the close.

The net burn that actually matters

Raw net burn can be misleading. Adjustments that create more useful "operational burn":

Remove one-off revenue spikes (single large contracts that won't repeat).
Remove one-off costs (legal fees for specific transactions, equipment purchases that won't recur).
Adjust for seasonal patterns (sales in December different from February).
Include accruals (bills due but unpaid, revenue earned but not collected).

True "operational burn" — the steady-state cash consumption of ongoing operations — is what runway calculations should use. Using a single month's net burn can overstate or understate runway significantly.

The three burn structures

Rising burn: Monthly expenses increase over time (hiring, scaling spend). Common in growth-focused startups. Creates shorter runway than static-burn analysis suggests — next month's burn is higher than this month's.

Steady burn: Monthly expenses stable. Typical of mature small businesses. Runway calculation straightforward.

Declining burn: Monthly expenses decreasing (post-cost-cut mode, path to profitability). Longer actual runway than static analysis suggests.

For accurate runway forecasting, project burn 3-6 months forward based on known changes, not just current month. A startup about to hire 5 people next month has materially different runway than current expenses imply.

The unit economics question

Burn rate alone doesn't tell the investor story. Investors want to know: is the burn producing productive growth? Key metrics:

CAC payback period: How long before a customer's gross profit exceeds their acquisition cost. Under 12 months: efficient. 12-24 months: acceptable. Over 24 months: concerning.

LTV:CAC ratio: Lifetime value of customer vs cost to acquire. Above 3:1: healthy. Under 1:1: you're destroying value on every customer.

Burn multiple: Net burn divided by net new ARR added. Under 1: excellent growth efficiency. 1-2: acceptable. Over 2: inefficient burn.

A startup with 24 months runway and poor unit economics might actually be in worse shape than one with 12 months runway and excellent unit economics — because the latter has a demonstrable path to profitability while the former is burning cash without building value.

The cost-cutting reality

When burn reduction is needed, cost categories by difficulty:

Easiest: Tools/software subscriptions, marketing spend, non-essential office costs. Can typically cut 20-40% without operational disruption.

Moderate: Non-core team roles, contractor dependencies, travel. 30-60% reduction possible but with operational impact.

Hardest: Core team, product development, customer-facing functions. Cuts here directly reduce company capability and often trigger departures of those who remain.

Most "cost cutting" exercises that preserve operational capability achieve 10-25% reduction in burn. Significant burn reduction (30%+) usually requires headcount cuts, which damage morale and productivity in ways that offset some of the burn benefit. Planning cost cuts to focus on lowest-impact categories first is standard practice.

The "default alive" framing

Paul Graham's influential essay distinguished startups that are "default alive" (will reach profitability before running out of money at current growth rates) from "default dead" (won't). This framing cuts through revenue and growth conversations to the core question: on current trajectory, does this company reach sustainability, or does it require continued funding to survive?

Default alive startups have fundraising as acceleration rather than survival. Default dead startups need fundraising to survive. The two are in dramatically different positions when negotiating with investors. Being able to articulate "we'll be cash-flow positive by month 18 even without additional funding" transforms the power dynamic of any fundraising conversation.

The founder-salary question

Early-stage founder compensation dramatically affects burn. A founder taking 100,000/year adds ~100,000 (plus ~15% employer NI) to annual burn. At early stage, this can be 15-25% of total burn. Many founders take below-market salaries (30,000-60,000) to extend runway, accepting personal financial pressure in exchange for company sustainability. The right founder salary depends on: company stage (lower earlier, higher as it matures), founder's personal financial situation (runway personally vs taking below-market), and investor expectations (Series A investors usually expect market-rate salaries).

What this calculator shows

The tool computes monthly burn rate and resulting runway from cash balance and expense/revenue inputs. It doesn't automatically model seasonal variation, burn structure projection, or unit economics. Use it for the basic runway calculation; pair with burn structure projection and unit economics assessment for complete operational financial management.