The Two Types of Burn — Net Burn vs. Operating Burn and Why the Difference Matters

Burn isn’t always chaotic. Sometimes it’s measured — and managed.

You’ve probably said it before:

“We burned about $100K last month.”

It’s a common phrase — short, useful, and easy to throw into a board deck or investor update. But what often gets missed is this: that burn number can mean two completely different things — namely, Net Burn vs Operating Burn. And if you’re not clear on which one you’re using, you may be telling the wrong story.

Most teams track Net Burn — the actual drop in cash from one period to the next. It’s clean, intuitive, and shows up in forecasts and reporting. But there’s also Operating Burn (sometimes called Gross Burn). It reflects what it costs to run the business, regardless of what came in from customers or investors.

They may sound similar, but they answer different questions, pull from different parts of your financials, and serve different purposes. Especially when paired with your ending cash balance to calculate estimated cash-out — or what’s commonly called “runway.”

In this post, we’ll walk through both metrics — what they mean, how to use them, how to calculate them, and where to find the numbers — so you can apply them yourself, even without an accounting degree. Burn isn’t just a finance metric. It’s one of the clearest signals you have.

---

Net Burn: What Actually Left the Bank

What It Is:

Net Burn is the actual drop in your cash balance over a given period. It answers one question: how much money did we lose this month, in total?

It includes all the money that went out — and subtracts all the money that came in. Whether that inflow came from customers, investors, or reimbursements, it all affects the final number. That’s why it’s called “Net” Burn.

Where It’s Used:

• Forecasting and runway modeling

• Board reporting

• Internal finance decks

• Cash risk planning

Why It’s Useful:

It reflects the true change in your cash position — no guesswork, no accrual distortion. It’s the cleanest link between your operating reality and your bank balance.

Formula:

Net Burn = Start-of-Period Cash – End-of-Period Cash

(Or alternatively: Net Burn = Total Cash Outflows – Total Cash Inflows)

What’s Included:

• Customer payments

• COGS (Cost of Goods Sold)

• OPEX (Operating Expenses)

• Any other cash outflows during the period

• Investor or owner funding

• Any other cash inflows during the period

• Vendor refunds or reimbursements

What’s Not Included:

• Depreciation, amortization, or other non-cash expenses

• Accrual-only accounting adjustments

Strengths:

• Straightforward to calculate

• Captures actual change in cash

• Widely used in forecasting and runway analysis

Limitations:

• Blends all activity types (operating, investing, financing)

• Can obscure trends if one-time events are present

• Doesn’t isolate core business performance

---

Operating Burn: What It Costs to Exist

What It Is:

Operating Burn reflects the total monthly cost of running the business, without regard for cash inflows. It shows what you’re spending to keep the business moving, regardless of whether revenue or funding came in.

Where It’s Used:

• Internal cost management

• Expense reduction planning

• Understanding business model efficiency

• Evaluating sustainability without outside capital

Why It’s Useful:

It isolates the core cash demands of your business, without noise from collections or capital inflows. This makes it ideal for understanding whether the business itself is financially efficient.

Formula:

Operating Burn = Total Monthly Cash Operating Outflows

(Note: inflows are not part of this metric)

What’s Included:

• COGS (Cost of Goods Sold)

• OPEX (Operating Expenses)

• Any other cash outflows tied to ongoing operations

What’s Not Included:

• Customer payments

• Investor or owner funding

• Vendor refunds

• Loan repayments

• CapEx (Capital Expenditures)

• Non-cash items like depreciation or amortization

Strengths:

• Clean view of recurring operating spend

• Ideal for evaluating spend discipline

• Useful for benchmarking operational efficiency

Limitations:

• Doesn’t reflect actual cash change

• May differ from Net Burn in timing

• Requires clean categorization of expenses

---

Net Burn vs Operating Burn: Why You Need Both

Operating Burn tells you what it costs to exist.

Net Burn tells you what actually happened.

One is about behavior (Operating Burn). The other is about impact (Net Burn).

If you’re only tracking Net Burn, you might miss warning signs in your expense base. If you’re only tracking Operating Burn, you might miss large cash events that affect your survival timeline. Together, they help you tell a clearer story — and ask better questions.

A few examples:

• If your Operating Burn is steady but Net Burn spikes, that could be CapEx, a loan payment, or another non-operating outflow.

• If Net Burn looks low but Operating Burn is high, you may be leaning on investor cash or customer prepayments.

• If both are rising, you’re not just burning faster — you’re burning wider.

The takeaway? You need both numbers to know whether your cash is disappearing for the right reasons — and whether you’ll be ready when it matters.

---

Final Thought

Burn is more than a metric. It’s a reflection of how your business behaves when no one’s watching. It shows what it takes to keep things going, how you’re funding that activity, and whether the picture makes sense when you step back.

When you track Net Burn and Operating Burn side by side, the story gets sharper. It’s easier to forecast. Easier to explain. And easier to act on.

---

Need Help Structuring Burn Into Your Monthly Reporting?

Brett J. Federer Accounting helps SaaS and RaaS companies structure burn into their monthly reporting with clarity and precision — no overcomplication, no guesswork.

For financial reports built to inform real decisions, reach out here.