Burn rate: survival math

A business loses $50,000 per month. It has $300,000 in the bank. This isn't a crisis — it's a 6-month countdown. The question is whether enough can change in those 6 months to stop the bleeding.

Burn rate turns abstract financial concerns into concrete timelines. Instead of "we're losing money," it becomes "we have until August." This clarity changes how decisions get made.

The pattern: Many businesses track revenue and profit but ignore cash. They assume profitability means safety. But profit is an accounting concept. Cash is what pays the bills.

The opportunity: Knowing the exact runway (months until zero cash) allows rational planning. It reveals whether current expenses are sustainable and how much time exists to find solutions.

The math is simple, but the implications are serious.

Monthly burn rate

Total cash spent per month minus total cash received per month. If a business spends $80,000 and receives $50,000, burn rate is $30,000 per month.

• Include all cash outflows: salaries, rent, software, contractors, taxes
• Include all cash inflows: customer payments, investment, loans
• The difference is what leaves the bank account each month

Runway calculation

Current cash balance divided by monthly burn rate equals months of runway.

• $300,000 cash ÷ $50,000 burn = 6 months runway
• $500,000 cash ÷ $25,000 burn = 20 months runway
• $100,000 cash ÷ $100,000 burn = 1 month runway

Why cash ≠ profit

A business might show $20,000 monthly profit on the P&L while burning $30,000 in cash. This happens when:

• Customers pay late (revenue recorded but cash not received)
• Inventory must be purchased before sales happen
• Equipment is bought with cash but depreciated slowly on paper

The P&L can look healthy while the bank account empties.

A framework from Y Combinator for understanding survival odds.

Default alive

If nothing changes — same revenue growth, same costs — the business reaches profitability before running out of cash. Survival is the default outcome.

• Current trajectory leads to sustainability
• External funding is optional, not required
• Time pressure exists but isn't immediate

Default dead

If nothing changes, the business runs out of money before reaching profitability. Death is the default outcome.

• Something must change: cut costs, raise prices, get investment
• Every month that passes without change shortens runway
• Decisions have urgency attached

How to calculate

Project forward: at current revenue growth rate and current costs, when does monthly revenue exceed monthly costs? Is that date before or after the cash runs out?

Example: Gross costs are $40,000/month. Revenue is $20,000/month growing 10% monthly. Cash is $150,000.

• Month 1: Revenue $22,000, gap $18,000, cash drops to $132,000
• Month 4: Revenue $29,282, gap $10,718, cash drops to ~$90,000
• Month 8: Revenue $42,871, gap nearly zero

Breakeven is around month 8. Cash lasts long enough to get there — but barely. If growth stalls at 5% instead of 10%, revenue at month 8 is only $29,549, still $10,000 short. This business is one growth slip away from default dead.

Another timeline that matters: how long until a customer pays back their acquisition cost.

Customer acquisition cost (CAC)

Total spent on marketing and sales divided by number of new customers. If $10,000 in ads generates 50 customers, CAC is $200.

Payback period

How many months until a customer's payments exceed their CAC.

• If CAC is $200 and customer pays $50/month, payback is 4 months
• If CAC is $500 and customer pays $25/month, payback is 20 months
• If CAC is $100 and customer pays $100/month, payback is 1 month

Why payback matters for burn

If payback takes 12 months, the business must fund 12 months of customer acquisition before seeing returns. Faster payback means cash returns sooner, reducing how much funding the business needs.

The deadly combination

High payback period + short runway = crisis. A business with 18-month payback and 6-month runway is paying to acquire customers it will never profit from.

Cash management matters, but the framework has limitations.

Businesses with predictable large inflows

A consulting firm might have low cash today but a signed $500,000 contract paying next month. Looking at current burn ignores the coming inflow. Runway needs to include known future events, not just current balances.

Seasonal businesses

A retailer might burn cash for 9 months then generate all profits in 3 months. Annual perspective matters more than monthly. A low point in July doesn't mean crisis if December covers everything.

Businesses that can cut costs quickly

Some businesses can reduce burn dramatically by cutting optional expenses. The real runway includes "what if we cut non-essentials" not just "if nothing changes." A business burning $80,000 but with $50,000 in optional expenses actually has a much longer survival timeline.

Over-optimization leading to under-investment

Minimizing burn at all costs can mean under-investing in growth. A business with 24 months runway that refuses to hire might save cash while competitors capture the market. Survival is necessary but not sufficient — the goal is building value, not just lasting.