Blog · Finance metrics and formulas · SaaS
Burn rate is how fast a company uses cash. This page gives the gross and net burn formulas, works six months of a software company's bank data with the Excel formulas, turns net burn into runway on a stated average, proves the figures by walking opening cash to closing cash, and covers the burn multiple.
Burn rate is how fast a company uses cash. Gross burn is the operating cash paid out in a month; net burn is that cash out minus the operating cash received, which is the fall in the cash balance. A software company with $14,910,000 in the bank and an average net burn of $1,556,700 over the last three months has 9.6 months of runway.
Gross burn = Operating cash payments in the month
Net burn = Operating cash payments − Operating cash receipts
Runway (months) = Cash on hand / Average monthly net burn
Burn is a cash measure, not a P&L one. A subscription business that bills annually in advance collects cash months before it recognizes the revenue, so its net loss and its net burn can be far apart. Bookings, billings and revenue explains why the two lines drift.
One row per month from the bank or cash-flow export:
| Column | Content |
|---|---|
| A | Month |
| B | Operating cash receipts: customer payments and other operating inflows |
| C | Operating cash payments: payroll, vendors, rent, taxes, and capex if you include it |
| D | Net burn: C − B |
| E | Closing cash |
Take financing flows out of column B. The cash flow statement separates operating, investing and financing activities, and the SEC's Beginners' Guide to Financial Statements lists the typical financing sources as "cash raised by selling stocks and bonds or borrowing from banks." A new equity round or a loan drawdown is cash in, but it is not the business paying for itself.
USD thousands, April 1 to September 30. Opening cash on April 1 is 24,000, held in a cell named OpeningCash. Net burn in D2 is =C2-B2; closing cash in E2 is =OpeningCash-D2, and from E3 down =E2-D3.
| Month | Cash receipts (USD thousands) | Cash payments, gross burn (USD thousands) | Net burn (USD thousands) | Closing cash (USD thousands) |
|---|---|---|---|---|
| Apr | 1,100 | 2,600 | 1,500 | 22,500 |
| May | 1,180 | 2,650 | 1,470 | 21,030 |
| Jun | 1,250 | 2,700 | 1,450 | 19,580 |
| Jul | 1,210 | 2,950 | 1,740 | 17,840 |
| Aug | 1,320 | 2,800 | 1,480 | 16,360 |
| Sep | 1,400 | 2,850 | 1,450 | 14,910 |
| Total | 7,460 | 16,550 | 9,090 |
Receipts grew 27% from April to September while payments grew 10%, so net burn drifted down from 1,500 to 1,450, apart from July. July's payments include a one-time annual insurance premium.
Runway depends on which average you divide by, so state it.
| Average | Net burn (USD thousands) | Runway at September 30 |
|---|---|---|
| Three months, Jul-Sep | (1,740 + 1,480 + 1,450) / 3 = 1,556.7 | 14,910 / 1,556.7 = 9.6 months |
| Six months, Apr-Sep | 9,090 / 6 = 1,515.0 | 14,910 / 1,515.0 = 9.8 months |
In Excel, with September in row 7:
=E7/AVERAGE(D5:D7)
The three-month runway is shorter because it carries July's insurance premium at one-third weight. Neither figure is wrong; the board deck should say which one it uses and the as-of date, because runway measured from September 30 is not runway measured today.
Add what is already committed. Twelve signed hires starting in October at a combined $150,000 a month take net burn to 1,556.7 + 150 = 1,706.7 and runway to 14,910 / 1,706.7 = 8.7 months. Forecasting those changes month by month is the job of a cash flow forecast; runway here is the simple divide.
Opening cash minus the sum of net burn must equal closing cash:
24,000 − 9,090 = 14,910
In Excel the check cell is =OpeningCash-SUM(D2:D7), and it must equal E7. Then tie 14,910 to the September 30 bank statements, every account included. If it does not walk, a financing flow, a transfer between accounts or a missing account has slipped into the receipts or payments.
Gross burn is the cost base: 2,866.7 a month on the Jul-Sep average. It answers what the company spends and whether that is under control. It also gives the floor case: if receipts stopped, 14,910 / 2,866.7 = 5.2 months.
Net burn is what runway rests on, because it is the actual fall in cash. Show both in the board deck: gross burn for cost control, net burn for runway, and the receipts line between them. Annualizing either figure is a run rate, with the same caveats set out in run rate: how to calculate it.
The burn multiple sets burn against growth:
Burn multiple = Net burn / Net new ARR, for the same period
It was popularized by investor David Sacks, who wrote that it "puts the focus squarely on burn by evaluating it as a multiple of revenue growth." It is an investor convention, not an accounting measure, and no standard defines it. If the company added 3,500 of net new ARR in July to September, the burn multiple is 4,670 / 3,500 = 1.3: it burned $1.33 for each dollar of new recurring revenue. Lower is better. The ARR side comes from the subscription base, covered in customer base KPIs for SaaS sales teams.
Upload the bank or cash export and Covirage's tools compute gross burn, net burn and runway on a stated average, checking that opening cash minus net burn walks to closing cash; the external AI model explains the movement and never computes it. See Covirage for SaaS sales teams for how burn, retention and new ARR tie together, and ten questions a SaaS CRO asks about the base for what the burn is buying. For the weekly view of runway, see the 13-week cash flow model; for what each customer costs to win and returns, customer acquisition cost and unit economics.
There is no single figure. Judge net burn by the runway it leaves and by what it buys: net new ARR per dollar of burn. Many boards want runway of 18 months or more before raising; that is a convention, and the right figure depends on the plan and the funding market.
Gross burn is all operating cash going out each month. Net burn subtracts operating cash coming in, so it is the actual fall in the cash balance. Gross burn tells you the cost base; net burn tells you how long the cash lasts.
Divide cash on hand by average monthly net burn. With $14.9 million in cash and a three-month average net burn of $1.56 million, runway is about 9.6 months. Recalculate every month, and add known future changes such as planned hires.
Close, but not identical. Net burn usually equals negative operating cash flow plus capital expenditure, because investors care about all cash leaving. State whether capex is included and keep it consistent month to month.