Burn is the number founders quote most and define least carefully. When someone says “we’re burning $80k a month,” do they mean everything they spend, or what’s left after revenue comes in? Those are two different metrics – gross burn and net burn – and forecasting them correctly is the difference between a runway number you can trust and one that quietly misleads you.

What is gross burn?

Gross burn is the total cash you spend each month, before counting any revenue. Salaries, rent, software, marketing, contractors – everything that leaves your bank account to keep the business running.

Gross burn = total monthly cash operating costs

Gross burn matters because it’s the number that doesn’t flatter you. Revenue can wobble, but your cost base is largely committed. Gross burn tells you what it actually costs to keep the doors open.

What is net burn?

Net burn is gross burn minus the revenue you collect. It’s the amount your cash balance actually falls by each month.

Net burn = monthly cash operating costs – monthly cash revenue

If you spend $100,000 a month and collect $40,000 in revenue, your gross burn is $100,000 and your net burn is $60,000. Net burn is the number that drives your runway, because it’s what’s genuinely draining your account.

A worked example

Say you’ve got $600,000 in the bank:

• Gross burn: $100,000 a month. On gross burn alone, that looks like six months of runway.
• Net burn: $60,000 a month, after $40,000 of monthly revenue. That’s actually ten months of runway.

Same business, same bank balance, but a four-month difference depending on which burn figure you use. Now flip it: if your revenue is lumpy and some months you collect nothing, your net burn spikes back towards your gross burn. That’s why forecasting the two separately matters – your survival depends on the gap between them holding up.

Why forecasting the difference correctly matters

The trap is forecasting net burn as if your revenue were as reliable as your costs. It rarely is. A few principles keep the model honest:

• Forecast gross burn from your committed cost base. These are the numbers you control and can see coming – headcount, contracts, subscriptions. This is your floor.
• Forecast net burn conservatively. Only net off revenue you’re genuinely confident of collecting, and mind the timing – revenue earned isn’t the same as cash in the bank if customers pay on 30 or 60-day terms.
• Stress-test the gap. Model a scenario where revenue underperforms by 20 or 30 per cent. If a modest revenue miss pushes your net burn close to your gross burn, your runway is far more fragile than the headline suggests.

How burn connects to runway

Runway is your cash balance divided by your net burn – but as we’ve written before, tracking burn rate on its own isn’t enough. The more useful question is operational runway: how many months you have to hit the milestone that unlocks your next raise. A clean split between gross and net burn feeds directly into that calculation, because it shows you both your worst-case spend (gross) and your expected drain (net).

The Australian angle: the R&D tax incentive

One quirk that trips up Australian founders is the R&D Tax Incentive. For many early-stage companies the refundable offset arrives as a single lump sum after you lodge your annual return – often a very welcome cash injection. The mistake is smoothing that rebate into your monthly net burn, which makes your ongoing burn look lower than it really is. Better practice is to forecast your underlying net burn without the rebate, then treat the R&DTI refund as a discrete cash event when it lands. That way your month-to-month burn stays honest, and the rebate reads as the runway extension it actually is rather than a permanent reduction in spend.

Disclaimer: This article is for general informational purposes only and does not constitute financial, legal or tax advice. Please speak with a qualified adviser (hey, that’s us!) before making decisions based on your specific circumstances.