Gross burn and net burn each contribute to a company’s understanding of one of the most important questions in business:
How long can the company keep earning and spending cash at this rate before it runs dry?
Burn rates reflect how quickly an organization is “burning through” its cash. There are two types of burn rates: gross burn and net burn. A company’s gross burn is the total amount of expenses incurred each month. A company’s net burn is the total amount of money a company loses each month.
Essentially, gross burn rate is equal to all of a company’s outgoing cash and net burn rate is the difference between outgoing cash and incoming cash. A healthy net burn rate is negative as it shows that a company has more cash coming in than it is spending each period.