5 Warning Signs Your Startup is Burning Cash Too Fast (+ How to Fix It)

Last month, I got a call from a founder who was convinced his company was thriving. Revenue was up 40% year-over-year. They'd just closed a big deal, the team was growing, but they were burning cash too fast!

But when I looked at the numbers, I saw something that made my stomach drop: they had four months of runway left. Maybe five if they cut expenses immediately.

They were burning through $180,000 a month and had less than $700,000 in the bank. Growth looked great on paper, but the math was brutal.

This is more common than you'd think. As a fractional CFO, I see startups burn cash too fast all the time—not because founders are reckless, but because they're focused on growth and don't see the warning signs until it's almost too late.

Here are five red flags that your startup's burn rate might be unsustainable—and what you can do about it before you run out of runway.

Warning Sign #1: You Don't Know Your Exact Monthly Burn Rate

If I asked you right now, "What's your burn rate?" could you answer within $5,000?

If not, you have a problem. Burn rate is the amount of cash your company spends each month. It's calculated as: Starting Cash - Ending Cash = Monthly Burn.

Many founders confuse burn rate with expenses. They'll say, "We spend about $100K a month," but that's not the same thing. Burn rate includes everything that hits your bank account—expenses, yes, but also debt payments, equipment purchases, payroll tax deposits, and timing mismatches between invoices and payments.

What to do: Calculate your burn rate for the last six months. Average it out. Now you have a baseline. Review it monthly. If you see it creeping up month after month without corresponding revenue growth, you're accelerating toward a cliff.

Warning Sign #2: Your Runway is Under 12 Months

Runway is how long your startup can survive at its current burn rate before the money runs out. The formula is simple: Cash in Bank ÷ Monthly Burn Rate = Months of Runway.

If you have less than 12 months of runway, you're in the danger zone. Here's why: fundraising takes 6-9 months from first pitch to cash in the bank. If you wait until you have six months of runway to start fundraising, you'll be negotiating from a position of desperation.

Investors can smell desperation. When they know you're running out of cash, they have all the leverage. You'll accept worse terms, give up more equity, or worse—run out of time completely.

What to do: If you're under 12 months of runway, you have three options: (1) Cut expenses immediately to extend runway, (2) Start fundraising NOW, not later, or (3) Accelerate revenue to achieve profitability before cash runs out. Most startups need to do all three simultaneously.

Warning Sign #3: You're Growing Headcount Faster Than Revenue

There's a rule of thumb I use: your revenue growth rate should be at least 1.5x your headcount growth rate. If you're growing revenue 30% year-over-year but adding 50% more people, your burn rate is accelerating faster than your ability to cover it.

I get it—you need people to grow. But every new hire adds $120K-$180K to your annual burn (salary + benefits + taxes + overhead). If that hire doesn't directly or indirectly generate revenue that exceeds their cost within 6-12 months, you're burning cash to fund a lifestyle company, not a scalable business.

What to do: Before every hire, ask: Will this person help us generate revenue faster, reduce costs, or enable us to operate more efficiently? If the answer is no—or if it's "someday"—delay the hire. Use contractors, part-time help, or automation instead.

Warning Sign #4: Your Customer Acquisition Cost Keeps Rising

If you're spending more and more to acquire each customer, you're burning cash on an unsustainable growth engine.

Customer Acquisition Cost (CAC) is calculated as: Total Sales & Marketing Spend ÷ Number of New Customers. If your CAC is increasing while your customer lifetime value (LTV) stays flat, you're in trouble.

A healthy SaaS company has an LTV:CAC ratio of at least 3:1. If you're spending $10,000 to acquire a customer who will generate $15,000 in lifetime value, you're burning cash for marginal returns.

What to do: Calculate your CAC and LTV. If your ratio is under 3:1, stop spending on paid acquisition until you fix your unit economics. Focus on organic channels, referrals, or improving retention to increase LTV.

Warning Sign #5: You're Celebrating Revenue Without Tracking Profitability

Revenue is vanity. Profit is sanity. Cash is reality.

I see founders celebrate hitting $1M in annual revenue, but when I look at their financials, they're losing money on every sale. Their gross margin is 30% because their cost of goods sold is too high. They're burning $200K a month to generate $80K in monthly revenue.

Growth is meaningless if you're subsidizing every customer with investor money. Eventually, that money runs out.

What to do: Calculate your gross margin: (Revenue - Cost of Goods Sold) ÷ Revenue. For SaaS companies, you should be above 70%. For product businesses, aim for at least 40%. If you're below these benchmarks, your unit economics are broken and you need to fix pricing, reduce costs, or both—before you scale further.

The Bottom Line: Extend Your Runway Before It's Too Late

That founder I mentioned at the beginning? We immediately cut $40K in monthly expenses, paused two hires, and renegotiated contracts with vendors. That bought him three extra months of runway—enough time to close a bridge round and get back to 18 months of cushion.

But it was a close call. If he'd waited another month, it would have been too late.

If you're seeing any of these five warning signs, don't wait. Calculate your burn rate, project your runway, and make the hard decisions now while you still have time.

The best time to extend your runway is when you don't desperately need to. The second-best time is right now.

Need Help Getting Your Burn Rate Under Control?

I offer complimentary financial diagnostics for early-stage companies. We'll analyze your burn rate, runway, and unit economics—then build a plan to extend your cash and get you to profitability or your next funding round. Schedule a conversation: