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Burn Rate and Runway: How Long Your Startup's Cash Will Last

Runway is cash divided by net burn. The formula is simple; the useful part is seeing how much a small change in costs or revenue buys you.

By Muhammad Ahmad. Published . 2 min read.

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For a company that is not yet profitable, one number sets the calendar: how many months until the money runs out. That is runway, and it comes from two inputs you already know, your cash balance and your monthly burn.

Gross burn and net burn

Gross burn is everything you spend in a month. Net burn is gross burn minus the cash that comes in from customers. Net burn is what actually shrinks your bank balance, so it is the one runway uses.

$500,000 in the bank, $20,000 revenue, $60,000 expenses

  1. Net burn

    $60,000 − $20,000equals$40,000/mo

  2. Runway

    $500,000 ÷ $40,000equals12.5 months

What a $10,000 change buys you

Cutting monthly expenses by $10,000, or growing revenue by $10,000, has the same effect: net burn falls to $30,000 and runway grows from 12.5 to about 16.7 months. That is more than four extra months from a change of one sixth in spending.

This is why runway conversations usually happen alongside hiring plans. One senior hire can shorten runway by months.

How much runway is enough?

Raising money often takes six months or more from first meetings to cash in the bank. That is why many founders aim for 18 to 24 months of runway after a round, and start preparing the next one before they drop below 12.

Mistakes that flatter runway

  • Counting money from a round that hasn't closed.
  • Using an average month when costs are rising, for example with hires already agreed.
  • Forgetting annual bills such as insurance, audits or yearly software renewals.
  • Counting invoiced revenue that customers haven't paid yet.

Default alive or default dead

A useful question to ask alongside runway is whether you reach profitability before the money runs out, if current trends continue. If revenue is growing fast enough that net burn hits zero within your runway, the company is on course to survive without raising again. If not, the plan depends on raising more money.

You can estimate this by projecting monthly revenue growth and expected cost increases forward month by month. It does not need to be precise; the point is to know which side of the line you are on early, while there is still time to change course.

Tip: Recalculate runway every month with real bank numbers, not the budget. The gap between the two is often where surprises hide.

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