Translation

Gross Burn = Cash burn rate
It is used to describe how quickly a company spends its available funds, particularly when its expenses exceed its revenue.

A simple definition

It is the amount of cash a company consumes over a specific period, usually calculated monthly. It has two forms: gross burn, which is the total amount the company spends, and net burn, which is the amount it spends after deducting its revenue. The latter is used most often when calculating Runway. The term is used especially when discussing startups that rely on their available funding to cover expenses before reaching profitability.

How does it work?

The company calculates how much more money it spends than it receives in revenue during the month.

If a company spends SAR 100,000 per month more than it generates in revenue, its Burn Rate is SAR 100,000 per month.

This term is linked to another concept called Runway, which is the length of time a company can continue operating using its existing cash before it runs out.

A simple example

Suppose a startup has SAR 600,000 in its account and spends SAR 60,000 per month more than its revenue.

In this case:

Burn Rate = SAR 60,000 per month

If the spending rate does not change:

600,000 ÷ 60,000 = 10 months

This means the company has a Runway of approximately 10 months before it runs out of cash.

What does this mean for you?

It means that the Burn Rate helps determine how quickly a company is using up its money, while the Runway helps determine how long the company can continue operating with that cash.

The higher the Burn Rate, the sooner the company needs to increase its revenue or secure new funding.

Frequently asked question: Does a high Burn Rate mean that the company is performing poorly?

Not necessarily. A startup may spend significant amounts at the beginning on hiring, marketing, product development, and expansion with the goal of achieving rapid growth.

However, the problem begins when the company continues to consume cash without achieving sufficient revenue growth or having a clear plan to reach profitability.