Cash runway is the number of months a startup can survive given its current cash balance and monthly burn rate. The formula is simple: cash balance divided by net burn rate. The calculation in practice is not, because most startups measure their cash burn incorrectly, fail to adjust for one-off effects, and systematically overstate runway as a result. For investors, runway is one of the first numbers they check.
The basic formulas: burn rate and cash runway
Two metrics form the basis of any runway calculation:
Gross burn rate
Gross burn rate is the sum of all monthly expenses, regardless of revenue. It shows how much money the company spends per month. Formula: Gross burn rate = Total monthly expenses
Net burn rate
Net burn rate also takes revenue into account. It shows how much cash the company loses net per month. Formula: Net burn rate = Monthly expenses minus monthly revenue. If net burn rate is negative, the company is not burning cash. It is generating cash. In that case runway is theoretically unlimited.
Cash runway
Runway follows directly from cash balance and net burn rate. Formula: Cash runway (in months) = Cash balance ÷ Net burn rate
Worked example
| Metric | Value |
|---|---|
| Cash balance | 600,000 EUR |
| Monthly expenses (gross burn) | 120,000 EUR |
| Monthly revenue | 40,000 EUR |
| Net burn rate | 80,000 EUR |
| Cash runway | 600,000 ÷ 80,000 = 7.5 months |
In this example the company has seven and a half months before the cash runs out, assuming revenue and expenses stay constant. That assumption is exactly the most common mistake.
The five most common mistakes in runway calculation
- 1Average burn rate instead of current: Many founders calculate the average over the last six months. When expenses are rising (because you are hiring, investing or carrying seasonal costs), the average overstates runway. Use the current monthly burn rate or the trend over the last three months.
- 2One-off effects not adjusted: A one-time tax payment, an annual licence prepayment, or a deposit for a new office distorts the monthly burn rate. Adjust for one-off items before calculating runway.
- 3Treating expected revenue as certain: Revenue that is not yet contractually secured does not belong in the runway calculation. Only count revenue that is contractually committed or historically stable. Pipeline is not cash.
- 4Ignoring planned cost increases: If you plan to hire five people in three months, burn rate goes up. A static runway based on today's burn rate ignores planned cost increases.
- 5Forgetting working capital: When customers pay only after sixty or ninety days, you have revenue but no cash. The runway calculation must be based on cash inflows, not invoiced revenue.
The most dangerous number in a startup is a runway based on assumptions nobody has questioned. Twelve months of runway on paper can become six months in reality, when burn rate rises, customers pay later and planned revenue does not arrive. Calculating conservatively is not a weakness. It is the foundation for decisions you can actually act on.
The right method: scenario-based runway planning
Instead of calculating a single runway value, work with three scenarios. Not to hide uncertainty but to make the range of possible outcomes visible:
| Scenario | Assumption | Example runway |
|---|---|---|
| Conservative case | Burn rate rises 15%, revenue stays at current level | 5.5 months |
| Base case | Current burn rate and current revenue trend | 7.5 months |
| Optimistic case | Revenue grows in line with pipeline forecast, burn rate stable | 10 months |
The conservative case is the number you should base your decisions on. The base case is the number you communicate to investors. The optimistic case shows the upside if everything goes to plan.
How much runway does a startup need?
The general rule of thumb: at least twelve to eighteen months of runway after every funding round. But the right number depends on the stage:
- Pre-Seed/Seed: Twelve to eighteen months. Enough time to find product-market fit and prepare the next round.
- Series A: Eighteen to twenty-four months. You need to prove the model scales while preparing the next round in parallel.
- Series B+: Eighteen to twenty-four months, with a clear path to profitability or the next round.
Below six months of runway, the situation becomes critical. You have little negotiating power left with investors, you are forced into compromises on terms, and you can no longer make long-term decisions.
Cash burn and runway in investor reporting
Three numbers belong in every monthly investor update: cash balance, monthly net burn rate, and runway in months. These three numbers are the minimum information experienced investors look for first. A simple chart of cash balance and burn rate over the last six to twelve months helps make trends visible before they become critical.