Why net burn matters to a first-time founder
If you only watch spending, you miss the number that decides when the money runs out. Runway is calculated from net burn, so it tells you how many months you have to reach the next milestone or raise again. Ignore it and a fresh funding round can hide an operation that still loses cash every month, until the bank balance makes the decision for you.
Examples of net burn
You spend $6,000 on operations in a month and collect $2,000 from customers. Net burn is $4,000. At that pace, $16,000 in the bank is four months. If an investor sends $20,000 that month, the bank balance rises, but operating net burn remains $4,000.
Common misunderstanding
People use burn rate without saying whether they mean this or the gross figure. Gross burn is everything you spent, before cash in. Both are useful. Only net burn tells you how fast the bank balance is actually falling. A month in which you spend a lot and collect a lot can be calmer than the gross number suggests.
When to use it
Work it out every month from your bank statement or accounting software, and use it whenever you turn the bank balance into months of runway. If customer receipts are lumpy, use a three-month average and say so, rather than treating one large invoice as a new permanent pace. Check it again before hiring, signing a long contract or setting a fundraising date.