Runway
How to Calculate Startup Runway (and Why the Simple Formula Misleads)
Runway is cash divided by burn, but which burn? How to calculate runway that holds up, and when to start raising before it runs out.
By Yoni Rubin, founder of BurnRateIQ6 min read
Runway is the number of months your company can operate before the bank account hits zero. Every founder knows the formula. Fewer know which numbers to put into it, and the wrong ones can add or remove half a year.
The Formula
Runway (months) = cash in the bank ÷ monthly net burn
Net burn is what you spend in a month minus what you collect. If you have $1.2M in the bank, spend $150K a month and bring in $50K, your net burn is $100K and your runway is 12 months.
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$1.2M at $100K a Month Lasts 12 Months
Three Mistakes That Distort It
1. Using One Month of Burn
A single month swings. A big annual software renewal, a quarterly tax payment or a slow collections month can double your burn for 30 days. Divide by that month and your runway looks half as long as it is. Divide by a quiet month and it looks twice as long.
Use the average net burn of the last three months. It smooths the lumps without hiding a real trend. That's the method BurnRateIQ uses on every company's Summary.
2. Using Today's Burn for the Whole Future
Runway measured on today's burn assumes nothing changes. But you have hires planned, a price increase coming, customers growing. If you plan to add three engineers next quarter, your runway is shorter than today's number says.
The better question is forecast runway: in which month does cash actually drop below zero, given your hiring plan and revenue forecast? That date is what investors ask about, and it's what a monthly financial model gives you. BurnRateIQ calls it the cash-zero date.
3. Counting Cash You Don't Have
Money a customer owes you isn't cash until it lands. Neither is a round that hasn't closed. Count the bank balance, not receivables or term sheets.
Profitable Companies Have No Runway
If you collect more than you spend, net burn is zero or negative and runway is infinite. Say "profitable" instead of quoting a giant number. A runway of 340 months tells an investor nothing.
When to Start Raising
A raise takes about six months from first meeting to money in the bank, often longer. Work backward from your cash-zero date:
- Start raising when you have about 12 months of runway left. That leaves six months to raise and a six-month cushion if it takes longer than planned.
- Under nine months, you're raising from a weaker position. Investors can see the date too.
- Under six months, cut costs first, then raise. Extending runway is the only lever you fully control.
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When to Start Raising
Months of runway left
- Under 6 monthsCut costs first, then raise.
- Under 9 monthsYou raise from a weaker position.
- About 12 monthsStart raising: six months to close plus six of cushion.
How Much Runway Is Enough After a Raise?
Most seed and Series A rounds are sized to buy 18 to 24 months: enough to hit the milestones that justify the next round, plus time to raise it. We cover how to size the round in How Much Should a Startup Raise?.
Calculate It Without a Spreadsheet
BurnRateIQ connects to QuickBooks or Xero, reads your actual monthly burn, and shows your runway, your cash-zero date and when to start raising, updated every time your books close. Build your model free.
Frequently Asked Questions
What is the formula for startup runway?
Runway in months equals cash in the bank divided by monthly net burn. Net burn is what you spend in a month minus what you collect.
Which burn should I use to calculate runway?
Use the average net burn of the last three months. A single month swings with annual renewals, tax payments or slow collections.
When should a startup start raising?
Start raising with about 12 months of runway left. A raise takes about six months, which leaves a six-month cushion if it runs long.
