Gross Burn vs Net Burn

Gross Burn and Net Burn measure cash consumption in growing businesses, particularly startups, but they track different aspects of cash flow. Gross Burn represents the total amount of cash a company spends in a given period before accounting for any incoming revenue, essentially capturing all operating expenses, capital expenditures, and other cash outflows. Net Burn, meanwhile, calculates the actual rate at which a company is depleting its cash reserves by subtracting any incoming revenue or other cash inflows from the Gross Burn, providing a more accurate picture of the company's true cash consumption rate and financial sustainability.

A pre-revenue technology startup should focus on Gross Burn when planning initial funding needs or establishing cost controls, as it represents the total capital required to operate the business before generating sales. For example, if a software company is raising its seed round, investors will want to understand the $150,000 monthly Gross Burn to determine the appropriate funding amount needed until the next milestone. Conversely, a company with growing revenue would emphasize Net Burn when making strategic decisions about growth versus profitability or when planning fundraising timelines. If the same company later generates $100,000 in monthly revenue against a $200,000 Gross Burn, their Net Burn of $100,000 provides a more realistic view of cash consumption, essentially doubling their runway compared to what Gross Burn alone would suggest. While Gross Burn helps establish baseline operational costs, Net Burn ultimately determines how quickly a company is moving toward either cash self-sufficiency or its next funding round.