Quick answer
Cash burn rate is how fast your bank balance falls when cash out exceeds cash in. Gross burn is total weekly or monthly outgoings; net burn is outgoings minus receipts. Divide your available cash by net burn and you get runway: the number of weeks or months before the money runs out if nothing changes. Slow the burn by lifting receipts, cutting fixed costs or deferring spending.
Key points
- Net burn = cash out − cash in over a period. If it's negative, you're generating cash.
- Runway = available cash ÷ net burn. It's a warning light, not a verdict.
- Measure from bank statements, not the profit and loss, and average over several weeks.
- The fixes fall into three buckets: more cash in, less cash out, and better timing.
“Burn rate” sounds like a term for venture-funded start-ups, but every business burns cash sometimes. A landscaper in winter, a retailer after Christmas, a clinic while a new practitioner builds a client list — all of them spend more than they bring in for a stretch. The owners who handle it well are the ones who measured it before it became a crisis.
What is cash burn rate?
It’s the speed at which your cash balance falls. There are two versions:
- Gross burn — total cash leaving the business in a week or month.
- Net burn — cash out minus cash in over the same period.
If you received $80,000 last month and paid out $92,000, your gross burn was $92,000 and your net burn was $12,000. If you received more than you spent, your net burn is negative — you’re building cash, not burning it.
How do you calculate burn rate from your bank statements?
Use real bank movements, not your accounting profit. Depreciation, accruals and unpaid invoices can make the profit and loss look very different from the bank.
- Pick a period — the last 8 to 13 weeks smooths out one-off spikes.
- Total every deposit that was genuine trading income. Exclude loan drawdowns, owner top-ups and transfers between your own accounts.
- Total every payment out, including tax, super and loan repayments.
- Divide each total by the number of weeks.
- Net weekly burn = average weekly outgoings − average weekly receipts.
| Measure | Formula | Illustrative figure |
|---|---|---|
| Average weekly receipts | Receipts ÷ weeks | $18,400 |
| Average weekly outgoings (gross burn) | Payments ÷ weeks | $21,100 |
| Net weekly burn | Outgoings − receipts | $2,700 |
| Cash available | Bank balance today | $54,000 |
| Runway | Cash ÷ net burn | 20 weeks |
The figures are illustrative only. Twenty weeks sounds comfortable, but if a quarterly BAS of $25,000 falls due in week 4, the real runway is much shorter. That’s why burn rate works best alongside a 13-week cash flow forecast, which places lumpy payments in the week they actually happen.
What drives a rising burn rate?
When net burn climbs, it’s usually one of these:
- Revenue dip — a lost customer, a quiet season or a price that’s slipped behind costs.
- Fixed-cost creep — a new hire, a bigger lease, software that multiplied.
- Slower collection — customers taking 50 days instead of 30.
- Growth spending — stock, marketing or fit-out ahead of the revenue it will produce.
The last one isn’t bad news. Burning cash to build something is fine if you know how long the runway is and when the new revenue lands. Burning cash without noticing is the problem.
If the numbers show a planned growth burn that needs a longer runway, ask us what’s possible — there’s no credit check just to find out.
How can you slow the burn?
Work through three buckets, in this order.
1. Bring cash in sooner. Chase overdue invoices, invoice on the day, take deposits and offer easy payment options. Our overdue invoice playbook shows how without burning the relationship.
2. Send less out. Review every recurring cost. Pause discretionary spending. Renegotiate supplier terms. Check whether prices have kept up with costs — our break-even guide shows how much a small price change moves the numbers.
3. Fix the timing. Spread annual costs into monthly instalments where possible, match equipment purchases to finance that runs over the asset’s working life, and set tax aside weekly so BAS never lands as a lump.
What does a burn rate tell a lender?
Lenders look at burn as a sign of trajectory. A business with steady turnover and a short, explained dip — seasonal, or a known contract gap — reads very differently from one with a steadily worsening trend. Being able to say “we burn about $3,000 a week between March and June, and the cycle reverses in July” shows you understand your business, which counts for a lot.
How do you cut burn without cutting growth?
Not all spending is equal. Before trimming, sort outgoings into three groups:
- Keep — costs that directly produce revenue or protect it: key staff, the equipment that does the work, marketing that reliably brings in customers.
- Pause — costs that can wait a quarter without damage: upgrades, non-urgent hires, new software, sponsorships.
- Stop — costs that no longer earn their place: unused subscriptions, duplicate tools, slow-selling stock lines.
Cutting across the board by a flat percentage feels fair but usually damages the parts of the business that generate cash. Targeted cuts protect the engine while slowing the burn. Record each decision in your forecast so you can see its effect week by week, and revisit the “pause” list once the numbers recover.
Extending the runway with the right facility
If your burn is temporary and you can explain it, funding can buy the weeks you need: a line of credit that covers the quiet months, or a property-secured loan for something bigger like a new site that takes a year to mature.
Tell us your numbers and what the money is for. The enquiry takes about a minute and won’t be recorded on your credit file. We don’t pass your details to a queue of lenders; a real person reads what you’ve written and calls to talk it through. The more accurate your turnover and figures, the better the match on that first call.
Frequently asked questions
What's the difference between gross burn and net burn?
Gross burn is everything that leaves your account in a period — wages, rent, suppliers, tax. Net burn subtracts what came in over the same period. Net burn is the number that tells you how fast your balance is actually falling.
Is burn rate only for start-ups?
No. Established businesses burn cash too — during a quiet season, after losing a major customer, while ramping up a new site or when costs rise faster than prices. Measuring it early turns a vague worry into a number you can manage.
How many months of runway is enough?
It depends on how predictable your income is and how quickly you could cut costs. A business with steady contracts can live with less runway than one relying on seasonal or project income. The more important thing is to know the number and have a plan before it gets short.
Should I count an unused overdraft or credit line as runway?
Many owners show two figures: runway on cash alone, and runway including undrawn facilities. The first shows your real position; the second shows how much breathing room you've arranged.