Burn Rate: How Fast You’re Spending Money (And Why It Matters)

May 23, 2025

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When you’re driving a car, everything from a skilled driver to top-tier tyres and a finely tuned engine helps — but none of it matters if you run out of fuel. Without it, no matter how well-equipped you are, you won’t get far.

That fuel is the burn rate of your startup.

It is the speed at which a startup spends its cash reserves. Especially for founders or newer entrepreneurs, it is essential to measure how long will that fuel last. This is why tracking your startup’s burn rate becomes so significant and relevant. Your burn rate tells you the length of the runway, determines your decision-making and is even a discussion-point when pitching and reaching out to potential investors.

What Is Burn Rate and Why Should Founders Care?

Burn rate is typically expressed on a monthly basis and measures how much cash a startup is “burning” or utilizing to run operations. There are two types- Gross Burn Rate and Net burn Rate. The total monthly operating expenses are what we refer to as gross burn rate. A company’s net burn rate is the total amount of money it loses each month. This can’t be greater than the gross burn rate but it can be less. Ideally, it should be quite less.

Burn rate also helps you plan your hiring strategy, how aggressively you’d like to market or whether you can diversify your product range at that point in time.

Why does it matter? Because your burn rate tells you how long your startup can survive without new funding. This is called your runway—and it’s as important as the business idea itself. A high burn rate with no clear revenue stream can raise red flags for investors and may signal that the business is scaling too fast without a sustainable foundation.

Even the best car won’t move an inch without fuel — just like a startup without cash.

How to Calculate Burn Rate (With Example)

How do you calculate your burn rate? Let us walk through the formula:

Net Burn Rate = Starting Cash – Ending Cash / Number of Months

Imagine that you start a textile business. If your startup had ₹60 lakhs at the start of Q1 and ₹30 lakhs at the end of Q1 (a 3-month period), your net burn rate is:

₹30 lakhs ÷ 3 = ₹10 lakhs/month

This means your startup is spending ₹10 lakhs more than it’s making every month. If your current cash balance is ₹30 lakhs, your runway is 3 months. What is a red flag here? If your burn rate’s higher than the revenue rate, then you’re in trouble. This countdown pressures you to either generate revenue quickly or secure the next round of funding before the clock runs out.

What to do if the Burn Rate is High?

How do you reduce the burn rate? A high burn rate isn’t inherently bad—especially in growth phases—but it must be intentional and managed. Here’s how:

Audit Expenses: Separate must-haves from nice-to-haves. Fixed costs like salaries, rent, and tech tools often eat up cash quickly.
Delay Non-Critical Hiring: Reassess staffing plans. Focus on multi-functional talent early on.
Outsource Smartly: Freelancers or part-time consultants can be cost-effective compared to full-time employees.
Negotiate with Vendors: Seek discounts, longer payment cycles, or bundle deals for necessary services.
Revenue Prioritization: Focus product or sales efforts on near-term revenue-generating features, even if they are smaller wins.

Ultimately, reducing burn doesn’t mean starving the business—it means being deliberate and agile in your spending. Tracking your expenses, as a startup that isn’t generating revenue tells investors where the money is being spent- whether the company will go into debt or whether it is spending justly to keep growing.

A high burn rate isn’t always a red flag- when a company is growing, burn rate will be high. What’s important is to know where, why and whether the spending is justified.

Burn Rate as a Startup Lifeline

In the startup world, where funding is finite and profitability may be years away, understanding your burn rate could be the difference between scaling and shutting shop. Burn rate is more than just a finance term. It is a term that measures the health of your startup and like any chronic health condition, requires regular checkups and doses.

Takeaways? Always keep an eye on your burn rate. Track it, analyse it and consistently do it without any slacking.

For a founder, it is imperative to be vigilant about these rates.

And if you’re looking for more practical insights, tips, and definitions, stay tuned to Growth Sense News as we break down the A-Z of Startup Jargon in this series.