Burn Rate and Runway: How to Calculate Both (and What Good Looks Like)

Runway is how many months your business can keep going before the cash runs out. Here's how to calculate runway: runway = cash in the bank ÷ net burn rate. If you have 60,000 in the bank and you lose 5,000 a month, you have 12 months of runway.

The formula is easy. Using it well is the hard part, because burn rarely stays still. Let's go through both numbers properly.

Gross burn vs net burn

There are two kinds of burn rate, and mixing them up is one of the most common mistakes in early-stage planning.

• Gross burn is all the money going out in a month: salaries, tools, hosting, marketing, rent, interest, taxes, equipment. It ignores revenue completely.
• Net burn is gross burn minus the money coming in. It's the amount your bank balance actually drops each month.

An example. You spend 9,000 a month and customers pay you 4,000:

• Gross burn: 9,000
• Net burn: 9,000 − 4,000 = 5,000

Runway uses net burn, because that's what shrinks your cash. Gross burn is still worth tracking. It tells you how fast you'd run out if revenue suddenly stopped, and it's the number investors compare with revenue to judge how efficiently you spend.

How to calculate runway

1. Take the cash you actually have available today. Don't count money you're expecting but haven't received.
2. Work out your net burn. The common shortcut is to average the last three months, which smooths out one-off bills.
3. Divide cash by net burn.

That gives you a quick answer. But notice the hidden assumption: that next month looks like the last three. For a growing startup, it almost never does.

Why simple runway can mislead you

Say you have 60,000 and your net burn is 5,000. Twelve months, right? Now add some ordinary events:

• You hire someone in month 4 at 3,000 a month. Net burn jumps to 8,000.
• An annual software bill of 2,400 lands in month 6.
• Revenue grows 10% a month, which slowly reduces net burn.

The real runway is no longer twelve months. It could be nine, or it could be longer if growth is strong. That's why it's better to project cash forward month by month and find the month it drops below zero. We call that the lowest cash point, and it's the single most useful number in any early plan.

A table like this, run forward for 18 or 24 months, beats any single runway figure.

What is a good runway?

There's no universal answer, but some common rules of thumb:

• If you plan to raise money, many founders aim to have 12 to 18 months of runway after a round.
• Raising usually takes months, so it's common advice to start the process while you still have around six months of cash left.
• If you're bootstrapping, the question is different: are you getting closer to break-even each month, or further away?

That last question is what Paul Graham of Y Combinator called being "default alive": at your current growth and spending, do you reach profitability before the money runs out? If yes, runway matters less. If no, it matters a lot.

Personal runway for bootstrappers

If you haven't raised money, there's a second runway that matters more: yours.

Personal runway = savings ÷ your monthly living costs.

If you have 9,000 in savings and your life costs 1,500 a month, you have six months. That's the real deadline for a founder working full-time on an unpaid startup. It's also why keeping a job or part-time income at the start isn't a lack of commitment. It's runway.

Five ways to extend runway without raising money

1. Cut costs you don't feel. Unused tools, oversized plans, idle subscriptions. Check every recurring charge.
2. Delay hires or use part-time help. A freelancer for ten hours a week costs a fraction of a full-time hire.
3. Bring cash forward. Annual plans and pre-sales move future revenue into today's bank balance.
4. Raise your prices. Often the fastest lever, and a useful test of how much customers value the product.
5. Consider a lifetime deal, carefully. It brings cash quickly, but you serve those users for years. Run the numbers first with a lifetime-deal profit calculator.

How investors judge your burn

Runway tells you how long you have. Investors also want to know whether the money is being spent well. One popular measure is the burn multiple: net burn divided by net new annual recurring revenue (ARR) in the same period.

Say you burned 150,000 in a quarter and added 100,000 of new ARR. Your burn multiple is 1.5: you spent 1.50 to add each 1 of recurring revenue. Lower is better. It's a rough measure, and it only makes sense once you have meaningful recurring revenue, but it captures a real question: is growth getting cheaper or more expensive as you scale?

For a pre-revenue startup, the more useful version is simpler. Write down what each month of burn is buying you: a product milestone, a set of customer conversations, a launch. If you can't say what the next three months of burn will prove, cut it until you can.

Common mistakes

• Counting expected money as cash in the bank
• Using gross burn instead of net burn for runway
• Forgetting annual bills, taxes and one-off costs
• Assuming today's burn will stay the same after you hire
• Checking runway once, instead of every month

Try it on your numbers

The free runway calculator shows how many months your cash lasts and whether growth gets you to break-even first. If you want the month-by-month view, including your lowest cash point, startzero.money builds it from your plan and updates it every time an assumption changes.