Runway is the number of months your company can keep operating before it runs out of cash, if nothing changes. It is the number founders watch most closely, because it decides when you need to raise money, cut costs or reach profitability.
How it works
Gross burn is everything you spend in a month. Net burn is gross burn minus the cash that comes in from revenue. Net burn is the one that actually drains the bank account.
Runway is your cash balance divided by net burn. If revenue already covers expenses, net burn is zero or negative and your runway is not limited by burn at all.
This assumes burn stays flat. In practice, costs often grow as you hire and revenue often grows too, so recalculate every month with fresh numbers.
A worked example
A company with $500,000 in the bank, $20,000 of monthly revenue and $60,000 of monthly expenses has a net burn of $40,000. That gives it 12.5 months of runway.
Questions people ask
How much runway should a startup have?
A common rule of thumb is 18 to 24 months after raising, because fundraising itself often takes 6 months or more. Many founders start preparing the next round once runway drops below 12 months.
Should I use net burn or gross burn?
Use net burn for runway, because it reflects the cash actually leaving the business. Gross burn is still worth watching, because it shows what you would spend if revenue dropped suddenly.
Should I include money I expect to raise?
No. Count only cash you already have. Money from a round that has not closed can fall through, and runway is supposed to tell you what happens if it does.