What Is Burn Rate?

Burn rate is the vital sign of cash consumption for pre-profit companies. It determines how quickly a startup depletes its funding and, combined with available cash, defines the runway — the time remaining before additional funding is needed or the business must become self-sustaining.

Gross burn rate includes all cash outflows: salaries, rent, marketing, technology, professional fees, and any other expenditure. Net burn rate subtracts revenue: if a company spends £200K per month and earns £80K, the net burn is £120K.

FP&A teams in startups should track burn rate weekly or at minimum monthly, comparing actual burn against the budgeted rate. Unexpected increases — often from hiring ahead of plan, scope creep in product development, or lower-than-forecast revenue — can dramatically shorten runway.

Reducing burn rate without undermining growth is one of the most challenging FP&A tasks. Common levers include delaying non-critical hires, renegotiating vendor contracts, shifting from permanent to contractor staff for variable workload, and prioritising revenue-generating activities over speculative investments.

For UK startups, burn rate analysis should include the timing of PAYE/NI remittances (monthly for most), quarterly VAT payments, and any R&D tax credit cash receipts (which reduce effective net burn when received). The Enterprise Management Incentive (EMI) scheme can help reduce burn by enabling tax-efficient equity compensation instead of higher cash salaries.