How to calculate and explain your burn rate to investors

The question that reveals everything

Somewhere in your first proper investor conversation, the question lands: "What's your burn?"

It sounds casual. It isn't. Your burn rate is one of the fastest ways an investor reads you. The number tells them how fast you're spending. But how you answer tells them something more important: whether you actually know your own business.

A founder who answers instantly, with a clean figure and the logic behind it, signals control. A founder who hesitates, gives a range, or quotes a number that doesn't match their bank statements signals the opposite — and now the investor is wondering what else you don't know.

The good news: burn rate is simple. It's one of the easiest numbers in your whole business to understand. The only hard part is keeping it current and being able to prove it. Let's fix both.

What burn rate actually is

Your burn rate is how much cash your business spends each month. That's the whole idea — the speed your money drains.

Think of it like a bath with the plug out. Water's running out the bottom (your costs) and, if you're lucky, some water's coming back in from the tap (your income). Burn rate is how fast the water level is dropping. The faster it drops, the sooner the bath is empty — and an empty bath is a business out of cash.

There are two versions of burn, and investors care about the difference, so it's worth getting them straight.

Gross burn is everything that goes out — total monthly costs, full stop. Salaries, software, rent, the lot. It's the size of the hole in the bottom of the bath.

Net burn is the gap after your income. It's what you spend minus what you bring in — the cash you actually lose each month once the tap's been running. This is the number that drives your runway, and usually the one investors mean when they ask "what's your burn?"

If you spend £30,000 a month and bring in £10,000, your gross burn is £30,000 and your net burn is £20,000. Both are true. Know which one you're quoting, and say which one — quoting gross when they meant net (or vice versa) is a small slip that makes you look fuzzy on your numbers.

How to calculate burn rate

The formula is barely a formula.

Net burn = monthly cash out − monthly cash in.

Take everything you spent last month. Subtract everything that came in. The gap is your net burn. If more came in than went out, congratulations — you're not burning at all, you're building cash, and you have a very different conversation with investors.

One thing trips people up, and investors notice it instantly: don't quote a single freak month. If last month included a year's insurance paid upfront, or a new laptop for the whole team, your burn looks artificially high. Average the last three months instead. That smooths out the blips and gives you a figure that reflects normal life — which is the figure an investor can actually use.

Burn is a cash number, not a profit number. It's about money physically leaving the bank, not accounting profit. (If that distinction feels slippery, see: Profit vs cash — why you can be profitable and still broke.)

What investors are reading into it

When an investor hears your burn, they're doing three things at once.

Dividing it into your cash to get your runway — how many months you've got left (cash ÷ burn). A burn of £20k against £200k in the bank is ten months. That single division frames how urgent your raise is. (See: How much runway do you need to raise?)

Judging whether it's sensible for your stage. There's no universal "healthy" burn — it depends entirely on what you're spending it on and what you're proving. A high burn that's buying real growth can be fine. A high burn with nothing to show is a worry. What they're really checking is whether you spend deliberately.

Watching whether you can explain it. This is the big one. They want to hear where the money goes — "£14k is the three of us, £4k is cloud and tooling, £2k is everything else" — and that you can defend each chunk. A founder who knows their burn cold is a founder who's in control of it.

The number matters. Knowing the number matters more.

The hard way to know your burn

In a spreadsheet world, your burn is whatever you last had time to work out — which is rarely now.

You sit down before the investor call to "check the burn." You open the bank, you open the spreadsheet, you realise last month isn't fully categorised, so you're guessing what some of it was. You forget that one big annual payment is skewing the figure. You produce a number, quote it on the call, and then next month produce a slightly different one — not because the business changed, but because you did the sum differently.

That inconsistency is what costs you. An investor who hears "around twenty grand" one month and "about twenty-six" the next, with no clean reason why, starts to discount everything you say. The maths was never the problem. Keeping the number current and consistent, by hand, is.

How it works in Ledgers

In Ledgers, your burn is always current — you never calculate it again.

Your bank feed flows in automatically, every transaction is categorised for you, and your books are continuously reconciled, so the figures are real and tied to the bank. From that, Ledgers works out your burn — gross and net — averaged sensibly so a one-off cost doesn't distort it, and updated as the money moves. It sits on screen next to your runway, current to today.

Better still, it's explainable. Because every transaction is categorised, you can see exactly where the burn goes — payroll, software, rent — so when an investor asks "what's the £20k made of?", you have the breakdown in front of you, not a vague guess. The ledger is event-sourced, so nothing disappears: the number you quote ties to transactions you can show.

You don't prepare your burn for the investor call. It's already prepared, every day, whether anyone's asking or not.

What you'd actually do

The investor asks, "What's your monthly burn?" You glance at Ledgers. "Net burn's £19,000, averaged over the last three months. That's £13k payroll for the three of us, £4k on cloud and tooling, £2k on everything else. Against our £200k in the bank, that's just over ten months of runway."

You answered in one breath, with the breakdown, and every figure ties to the bank they'll check in diligence. The investor didn't just get a number — they got the signal they were really after: this founder knows exactly where the money goes.

That's what calculating and explaining your burn really buys you. Not a statistic. Trust.

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Ready to stop recalculating this before every investor call? In Ledgers, your burn — gross and net — is always current, worked out automatically from your reconciled bank feed, with the breakdown of where it goes right next to it. See your numbers without learning accounting → start free.

New to the concept? Start with What is runway and how do I work out mine? →

Mid-raise? Next: How much runway do you need to raise? → and How to answer investor due diligence →

Frequently asked questions

What is burn rate?

Burn rate is how much cash your business spends each month. Gross burn is your total monthly costs; net burn is what you spend minus what you bring in — the cash you actually lose each month. Net burn is usually what investors mean and what drives your runway.

How do I calculate burn rate?

Net burn = monthly cash out − monthly cash in. Average the last three months rather than using a single month, so a one-off cost (like annual insurance) doesn't distort the figure. It's a cash number — money actually leaving the bank — not an accounting profit number.

What's the difference between gross and net burn?

Gross burn is everything you spend each month. Net burn subtracts your income, so it's the real cash shortfall. If you spend £30k and earn £10k, gross burn is £30k and net burn is £20k. Always say which one you're quoting.

What is a healthy burn rate for a startup?

There's no universal figure — it depends on what the spending is buying and what milestone you're proving. Investors care less about the size of the burn than whether you can explain where it goes and whether it's buying real progress. A deliberate, well-explained burn beats a low one with no plan.

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