How burn rate is calculated
BDC defines burn rate as net cash outflow, typically measured monthly. Take the cash that left the business in the period, subtract the cash that came in, and the shortfall is the burn. If receipts match or exceed payments, the business is not burning cash. Some people also quote a gross figure that counts only outflows, so confirm which one is being used when comparing numbers.
Use bank-reconciled cash figures rather than profit. Loan proceeds, loan repayments, equipment purchases and owner withdrawals all move cash without being ordinary expenses, so a profit-based figure can mislead.
From burn rate to runway
BDC’s cash runway formula divides the cash balance by the burn rate. For illustration, a business holding $90,000 that burns $15,000 a month has a runway of six months. After that, it would need new funding, higher sales or lower costs.
BDC cautions against calculating burn from too short a period. BDC notes that two months of data will not capture spending fluctuations, so a longer period gives a steadier picture. Seasonal swings, a large annual payment or a one-time receipt are typical reasons why. A runway calculation also assumes the burn stays constant, which hiring, price changes or slower collections can alter.
Who needs to watch it
Burn rate matters most when a business is pre-revenue, newly launched, investing heavily in growth or going through a seasonal low. An established, profitable business may see it only briefly, for example while waiting on a large receivable or paying a lump sum such as a tax balance.
Burn rate says nothing about whether the spending is sensible. A higher burn that builds sales may be a deliberate choice, and a low burn can hide a business that is not growing. It is a measure of how long you can continue, not of how well you are doing.
What to discuss with your accountant
Ask your accountant to help separate fixed costs, such as rent and wages, from costs that move with sales, and to identify irregular payments that should be spread across the months. Agree on whether you will track net or gross burn and on which period you will average over.
Pair the figure with a dated cash flow forecast and review both monthly. If runway is shortening, discuss options early: timing of owner withdrawals, collection of receivables, supplier terms or financing, while you still have choices.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
- Cash runwayBDC
- Cash flowBDC
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.