Burn is the speed at which your bank balance falls. Two founders can have the same revenue and the same product, yet the one who does not know the difference between gross and net burn will run out of cash without warning. This lesson covers both numbers, how to track them month by month, and the statutory Indian payroll costs (PF and ESI) that quietly make your real burn higher than the salary figures you carry in your head.
Gross burn versus net burn
Gross burn is the total cash your company spends in a month: salaries, rent, cloud bills, marketing, professional fees, and everything else that leaves your account. Net burn is gross burn minus the cash you actually collect from customers in that month. Net burn tells you how fast you are truly losing money, and it is the number that decides your runway.
The formula is simple: runway equals cash in the bank divided by net burn. Suppose you hold Rs 1,00,00,000, spend Rs 25,00,000 a month, and collect Rs 5,00,000 in revenue. Your gross burn is Rs 25,00,000, your net burn is Rs 20,00,000, and your runway is Rs 1,00,00,000 divided by Rs 20,00,000, which is 5 months. Investors watch net burn most closely because it drives runway. Watch gross burn too, because it shows how exposed you are if revenue stops overnight.
Track both every month
Measure from your actual bank statement, not from accrual accounting. Collections slip, invoices get paid late, and one large annual payment can distort a single month. Log gross burn and net burn on the same date each month and look at a rolling three month average, so a lumpy month does not send you into panic or false comfort. When net burn rises, decide early whether it is investment (hiring, ad spend) that you chose, or leakage you did not.
The hidden India costs that inflate real burn
First time founders often model burn using take home salary or the offer number, then get surprised when the bank balance falls faster. The reason is that an employer in India pays statutory contributions on top of what the employee sees. Two matter from day one.
Provident Fund (EPF)
For covered employees, both the employee and the employer contribute 12 percent of eligible wages (basic plus dearness allowance). The employer 12 percent is split into 3.67 percent to the EPF account and 8.33 percent to the Employees' Pension Scheme, with the pension part capped at the Rs 15,000 wage ceiling (Rs 1,250 a month). On top of the 12 percent, the employer also pays 0.50 percent towards EDLI insurance and 0.50 percent as administrative charges. So your real cost per covered employee is roughly 13 percent of eligible wages above the salary itself, not zero.
Employees' State Insurance (ESI)
ESI applies to employees earning up to Rs 21,000 per month in gross wages. The employer contributes 3.25 percent and the employee 0.75 percent of gross wages, a total of 4 percent. For junior and support staff who fall under this ceiling, that 3.25 percent is another employer outflow that hits your burn.
There is also a longer term liability worth noting: gratuity accrues under the Payment of Gratuity Act, 1972 and becomes payable after five years of continuous service, so it builds as a future obligation rather than immediate monthly cash.
The practical takeaway: build employer PF, EDLI, admin charges, and ESI into your salary model before you compute gross burn. If you skip them, your runway is shorter than your spreadsheet claims, which is exactly the surprise a disciplined founder never wants.