Why burn rate matters to a first-time founder
Burn rate decides how long you have before the money runs out. If you do not track it, costs creep up one tool and one contractor at a time, runway shrinks unnoticed and you start fundraising too late, from a weak position. Investors ask for it early, and knowing it lets you see the effect of a hire or a price change before you commit to it.
Examples of burn rate
The company spends £6,000 in a month and collects £1,500, so net burn rate is £4,500 and gross burn is £6,000. With £54,000 in the bank, runway at that net burn is twelve months. Add a £2,000-a-month contractor and net burn becomes £6,500, cutting runway to just over eight months. Say which burn figure you mean whenever you share it.
Common misunderstanding
People mix burn rate up with runway, or they treat a high burn as proof of ambition. Runway is the cash you have, divided by the monthly burn. A high burn is reasonable only when the cash you hold, and what you are learning, justify the speed.
When to use it
Check the burn rate each month once you spend more than you bring in. If a hire or a new tool would raise it, make the decision with the new monthly figure in front of you.