The investor’s field guide · B
Burn rate
The speed at which a company spends cash, commonly stated as gross spending or net cash outflow per month.
Explained by the editorial team
Burn rate measures cash consumption. Gross burn usually means cash expenditure over a period. Net burn subtracts operating cash receipts, although definitions vary. A business should state what it includes, particularly for financing flows and unusually large payments.
A worked example
A company spends £80,000 and collects £30,000 in a month. On that simple operating basis, gross burn is £80,000 and net burn is £50,000. Dividing usable cash by net burn gives a rough estimate of runway if the pattern continues.
What to examine
Distinguish accounting losses from cash outflow. An invoice recorded as revenue does not fund payroll until it is paid. Annual subscriptions, tax bills and equipment purchases can also distort a single month. Compare recent actual spending with the forecast and understand what management can reduce without damaging the business. A falling burn rate may reflect improving trading, but it can also reflect delayed payments or cuts that cannot be repeated indefinitely.
General information, not investment, legal or tax advice. Examples are illustrative. Read the disclaimer.