The burn rate calculator above takes four numbers you already have — cash out, cash in, headcount, and bank balance — and returns the two figures that actually describe how fast a business is consuming cash. Gross burn is total monthly cash leaving the account. Net burn is that number minus the cash coming in. Most pages that explain burn rate blur the two together, and that blur is exactly where founders get their runway math wrong.
Arb Digital's team runs this calculation whenever a client asks how much they can afford to put into marketing next quarter, because a marketing budget set against gross burn tells you nothing useful. What matters is the net figure, how much of it is payroll, and how many months of cover the current bank balance buys at that rate.
What This Burn Rate Calculator Does
Enter your monthly cash out and the tool returns gross burn immediately. Add monthly cash collected and it computes net burn — the true monthly deficit. Headcount converts that deficit into net burn per employee, a normalised figure you can compare across time even as the team grows or shrinks. The cash balance field turns the whole thing into months of cover, and the payroll share slider splits your spend into people costs versus everything else, because those two buckets behave completely differently when you need to change the number.
The calculator also reports cash-in coverage: the percentage of your monthly spend that incoming cash already pays for. At 100% coverage you are cash-flow break-even and net burn is zero. Below that, the gap is the number that matters. Above it you are net cash generative, and the tool says so rather than reporting a meaningless negative burn.
How to Use It
- Enter monthly cash out. Take an average of the last three months of actual bank outflows rather than a single month, which can be distorted by an annual software renewal or a quarterly tax payment.
- Enter monthly cash in. Use cash that landed in the account, not revenue you booked. Invoices sitting in receivables are not cash and should not appear here.
- Enter headcount. Count full-time equivalents. Two half-time people count as one; a full-time contractor you rely on every week is arguably one too.
- Enter cash in bank. Only cash you can actually spend. Exclude restricted deposits, security bonds, and any undrawn credit facility.
- Set the payroll share. Divide total payroll cost by total cash out to get the percentage, then read the split bar to see how concentrated your spend really is.
The Formula / How It's Calculated
Gross burn is simply total monthly cash outflow: Gross Burn = Total Cash Out. Nothing is netted off. It answers the question "how much does it cost to run this business for a month?"
Net burn subtracts collections: Net Burn = Cash Out − Cash In. With $180,000 going out and $72,000 coming in, gross burn is $180,000 but net burn is $108,000. Those two numbers describe the same company and differ by 40%. Quote the wrong one in a board meeting and every downstream projection is wrong with it.
Burn per employee divides net burn by headcount: $108,000 ÷ 18 = $6,000 per person per month. Months of cover is cash balance ÷ net burn: $1,350,000 ÷ $108,000 ≈ 12.5 months. Cash-in coverage is cash in ÷ cash out, or 40% in this example — meaning revenue currently funds two-fifths of the operation and investor or owner capital funds the rest.
Why Cash Burn and Accounting Loss Are Not the Same Number
A profit-and-loss statement and a bank statement can tell contradictory stories about the same month, and burn rate follows the bank statement. Under accrual accounting, revenue is recorded when earned and expenses when incurred, regardless of when money moves. Under cash accounting, both are recorded when the money actually changes hands. The IRS sets out the difference between permitted accounting methods in Publication 538, Accounting Periods and Methods, and the practical consequence for burn is large.
A company can post an accrual profit while burning cash hard, because customers on 60-day terms have not paid yet. It can also post an accrual loss while burning nothing, because it collected a year of subscription fees upfront and is recognising that revenue a month at a time. Burn rate ignores all of it and asks one question: did the bank balance go down, and by how much? That is why deferred revenue, prepaid annual contracts, and slow-paying enterprise customers can make burn look wildly different from the number on the income statement. If your burn and your reported loss disagree, receivables and deferred revenue are almost always the reason.
Burn Per Employee: The Comparison That Survives Growth
Absolute burn always rises as a company hires, which makes month-over-month burn comparisons close to useless during a growth phase. Burn per employee normalises for that. If net burn per head is flat at $6,000 while headcount doubles, the cost structure is stable and the increase in total burn is a deliberate scaling decision. If burn per head climbs from $6,000 to $9,000 without a hiring change, something non-payroll is expanding — cloud spend, agency retainers, office costs — and the total burn figure alone will not tell you which.
The figure is also a useful sanity check on efficiency across very different business models. An engineering-heavy software company in a high-cost city will naturally carry a higher burn per head than a distributed services business. The number only means something compared against your own history or against companies with a genuinely similar cost base — never against a headline figure from a press article about a company in a different country, industry, and funding stage.
The Fixed and Variable Split Nobody Separates
The payroll bar in this calculator exists because the two halves of your burn respond to pressure on completely different timescales. Non-payroll spend — software subscriptions, ad budgets, contractor invoices, travel — can often be adjusted within a single billing cycle. Payroll is slower, involves notice periods, severance obligations that vary by jurisdiction, and a real cost in lost knowledge that never appears in any spreadsheet.
When payroll is 65% of cash out, a 20% cut to everything-else spend reduces total burn by only 7%. That arithmetic surprises people who assume trimming tools and vendors will move the needle meaningfully. Knowing the split before you need it tells you honestly how much flexibility your cost base actually has, and over what timeframe that flexibility becomes available. A company with a 40% payroll share has options a company at 80% does not.
Lumpy Months and the Averaging Trap
Burn rate calculated from a single month is one of the least reliable numbers in business finance. Annual insurance premiums, quarterly estimated tax payments, hardware purchases, conference sponsorships, and year-end bonuses all land in specific months and can double a month's apparent burn. Averaging over three months smooths most of this. Averaging over twelve smooths all of it, but reacts too slowly to a genuine change in spending.
A practical compromise is to track a rolling three-month average alongside the raw monthly figure, and to note any one-off item above a threshold you set — say anything over 5% of monthly burn — so that a spike can be explained rather than panicked over. The same discipline applies on the cash-in side: one large customer paying an overdue invoice can make a month look cash-flow positive when nothing structural has changed.
What Happens to Burn When You Cut Spend
Cost reductions rarely take effect the month you decide on them. Software contracts run to renewal dates. Office leases have exit terms. Notice periods and statutory redundancy obligations mean payroll reductions carry an upfront cash cost before they produce a saving — sometimes a large one. The result is that burn frequently increases for a month or two after a cost-cutting decision before it falls, which is the opposite of what most cash projections assume.
When you model a reduction, model the transition cost explicitly and the date each saving actually starts, not the date the decision was made. The startup runway calculator handles the second half of this problem by showing how many additional months a given monthly saving buys you at your current cash balance.
Burn Rate in the Context of Unit Economics
Burn tells you the speed of cash consumption but says nothing about whether the spending is productive. A company burning $100,000 a month to acquire customers who repay that cost in six months is in a fundamentally different position from one burning the same amount on customers who never repay it, even though the burn figure is identical. That question belongs to unit economics, which you can work through with the LTV to CAC ratio calculator and the payback period calculator.
Pair burn with those two and the picture becomes complete: how fast cash is going out, how long until each acquired customer returns it, and how much cash the balance sheet has to bridge that gap. The MRR calculator covers the recurring-revenue side that determines whether cash-in coverage improves or decays over time. The U.S. Small Business Administration's guidance on managing business finances covers the surrounding fundamentals in plain language.
Arb Digital builds acquisition programmes sized to what a business can actually sustain, with reporting that ties spend back to cash collected rather than platform-reported activity.
Talk to Arb Digital Browse Free ToolsCommon Mistakes to Avoid
- Quoting gross burn when someone means net burn — the two can differ by half, and every runway figure derived from the wrong one is wrong too.
- Counting invoiced revenue as cash in — money in receivables has not funded anything yet, and slow payers can turn a "break-even" month into a heavy burn month.
- Including an undrawn credit line in the cash balance — available credit is a financing option, not cash, and drawing it changes your obligations.
- Using one month as the burn rate — annual renewals and quarterly tax payments make single months unrepresentative in both directions.
- Assuming cost cuts land immediately — contract terms and notice periods usually delay savings by a month or more, and can raise burn in the interim.
Related Free Tools From Arb Digital
Turn your burn into a survival timeline with the startup runway calculator, check the balance-sheet side with the working capital calculator, find the revenue level that ends the burn entirely with the break-even calculator, and see what your team really costs with the employee cost calculator. Browse the full free online tools hub for more.
Frequently Asked Questions
Gross burn is total monthly cash leaving the business. Net burn subtracts cash collected in the same month, so it reflects the actual monthly reduction in your bank balance. A company spending $180,000 and collecting $72,000 has a gross burn of $180,000 and a net burn of $108,000.
Almost always net burn, because that is the figure that determines how long the cash lasts. It is still worth quoting both, since gross burn shows the size of the cost base independently of how much revenue is currently offsetting it.
Divide net burn by full-time-equivalent headcount. It normalises burn for team size, so you can tell whether rising total burn reflects deliberate hiring or a cost structure that is drifting upward on its own.
Cash. Burn measures money actually leaving and entering the bank account. Accrual figures record revenue when earned and expenses when incurred, which can differ from the cash timing by weeks or months.
Three months is the common compromise. It smooths annual renewals and one-off purchases without reacting so slowly that a genuine change in spending takes a quarter to show up.
If cash collected exceeds cash spent, the business is cash generative rather than burning. Rather than reporting a negative burn, this calculator reports the monthly cash surplus, which is the clearer way to describe that position.
Yes, if the money leaves the bank account in that month. Burn is a cash measure, so debt service, tax payments, and capital purchases all count even though some of them never appear as operating expenses on a profit-and-loss statement.
Figures produced by this tool are planning estimates only and do not constitute financial, tax, or accounting advice. Cash flow outcomes depend on collection timing, contract terms, and rules that vary by jurisdiction.
