Burn rate meaning

The pace at which a company spends available cash, typically expressed as average monthly net cash outflow. In practice, lawyers and investors use burn rate to assess liquidity and “cash runway” (how many months until cash is exhausted). It is a commercial/financial term, not defined in legislation or case law, but is widely used across venture capital, corporate finance and restructuring in England & Wales, Scotland, Northern Ireland and Ireland. Practitioners distinguish gross burn (total monthly cash expenses) and net burn (cash outflows minus cash inflows). It is calculated from cash flow, excluding non-cash items, and is central to budgeting, board reporting and investor updates. Legal relevance includes: term sheets, investment and shareholders’ agreements (reporting undertakings, budget compliance, drawdown conditions and financial covenants); due diligence; valuations; and bridge or follow-on funding decisions. A high or increasing burn rate may impact going-concern assessments, trigger consent thresholds, or require directors to consider insolvency risk and their duties (including avoiding wrongful or reckless trading) and take timely advice. While commonly described for start-ups as the rate at which venture capital is spent before generating revenue, the concept applies equally to any loss-making period, including post-revenue operations. Usage is broadly consistent across the UK and Ireland.