Burn rate, explained with Indian examples
What burn rate means, gross and net, why Indian burn is lumpy, how to tell if yours is too high, and five ways to lower it. With a breakdown to try your own month.
Burn rate is how fast you spend cash. Gross burn is everything that goes out in a month to run the business; net burn is that less what customers paid. Use the average of three complete months, because GST, advance tax and annual payments make single Indian months lumpy. Net burn sets your runway.
Gross burn and net burn
- Gross burn is everything that goes out in a month to run the business: salaries, rent, software, marketing, taxes paid.
- Net burn is gross burn less what comes in from customers. It’s the one that sets your runway.
| An example month | Amount |
|---|---|
| Salaries and staff | ₹6,50,000 |
| Rent, software, marketing and the rest | ₹3,13,000 |
| GST, TDS and PF paid | ₹2,00,000 |
| Gross burn | ₹11,63,000 |
| Money in from customers | ₹4,72,000 |
| Net burn | ₹6,91,000 |
With ₹60 lakh in the bank, that net burn gives a runway of about 8.7 months. See how to calculate runway.
Use three months, not one
Indian burn is lumpy. Use the average of the last three complete months, because single months swing:
- Advance tax is paid four times a year: 15 June, 15 September, 15 December and 15 March.
- GST is paid on the 20th for what you invoiced the month before, so a big billing month burns cash the month after.
- Annual payments (software plans, insurance, audit fees) land in one month.
- Bonuses and increments arrive in a few months of the year.
What isn’t burn
Money moving between your own accounts, investment and loans coming in, and loan principal paid back. None of it is the business earning or spending. See how Cassence works out cash and burn.
Break down your burn
Put in a rough month. See gross and net burn, each line’s share, and what a cut to the biggest line saves.
A month, rough is fine
Worked out in your browser. Nothing is sent.
Your biggest line is salaries and staff, 56% of your burn. Cutting it by 10% saves ₹65,000 a month, and takes net burn to ₹6,26,000.
Is my burn too high?
There is no single right number. Judge burn against three things instead:
- Your runway
Burn is too high when runway is shorter than the time it takes to raise or reach break-even. Under 6 months, Cassence flags it to act on this month; under 3, this week.
- Whether it’s rising
Burn that grows month after month, whatever revenue does, is a warning on its own. Cassence’s Burn rising check watches for it.
- What it buys
Spending that grows faster than revenue, payroll especially, means each new rupee of cost brings less back. Payroll growing faster than revenue is one of the checks.
Five ways to lower it
- Start with the biggest line. A 10% cut in salaries usually saves more than cancelling every small tool.
- Find what you pay for twice. Two tools doing one job is the easiest cut there is.
- Collect faster. Money in lowers net burn as surely as a cost cut.
- Claim all your GST input credit. Credit you miss means paying more GST in cash.
- Pause before you hire. Add the hire to a cash forecast first and see where the lowest week lands.
Questions
What is burn rate?
How fast a company spends its cash. Gross burn is everything that goes out in a month to run the business; net burn is that less what comes in from customers.
How do you calculate burn rate?
Add up the money that left the bank to run the business in a month, and take off what customers paid. Average the last three complete months, so one lumpy month doesn’t mislead you.
What is a good burn rate for a startup?
One your runway can carry: enough months to raise or reach break-even with room to spare, and burn that isn’t rising faster than revenue.
Is GST part of burn?
Yes. GST you pay leaves the bank, so it is in burn. It is paid on the 20th for the month before, which makes burn lumpy after big billing months.
What is the difference between burn rate and runway?
Burn is how fast cash goes; runway is how long it lasts. Runway is cash in the bank divided by net burn.
Know your burn every morning
Cassence works out gross and net burn from your bank and books every night, by category and vendor, and tells you when it starts rising.