How to Calculate Your Startup's Runway

Runway is the number of months your startup can operate before running out of cash. The formula is deceptively simple: Runway equals your cash balance divided by your monthly burn rate. But while the formula is straightforward, calculating it accurately requires careful attention to what counts as cash and what counts as burn.

The Basic Formula:
Runway (months) = Cash Balance ÷ Monthly Burn Rate

Example: If you have $1,200,000 in the bank and burn 100,000 per month, your runway is 12 months ($1,200,000 ÷ 100,000 = 12).

This simple calculation provides a useful baseline. However, the numbers you plug into this formula require careful thought. Using inaccurate cash balances or burn rates will give you an inaccurate runway—and an inaccurate runway can be fatal.

Your cash balance is not just what shows in your business checking account. To calculate runway accurately, you need to include all liquid assets that are available to fund operations.

Include in Cash Balance:
Business checking accounts (the primary operating account), savings accounts and money market funds, short-term investments that can be liquidated within 30 days, and available credit lines (only if you plan to use them).

Do Not Include:
Accounts receivable (until they are collected), committed but undrawn venture financing (the deal is not done until cash is wired), anticipated revenue that has not been received, or personal funds (unless you are planning to contribute them).

Example Calculation:
- Checking account: $800,000
- Savings account: $200,000
- Money market: 100,000
- Available credit line: $0 (not included)
- Total Cash Balance: $1,100,000

Be conservative. It is better to be pleasantly surprised than desperately disappointed.

Your burn rate is the average amount of cash you consume each month. Using a single month's burn can be misleading—expenses vary. Use a 3-6 month average for accuracy.

Calculate Net Burn:
Net Burn = Total Monthly Expenses - Monthly Revenue

Use the last 3-6 months and take the average. This smooths out one-time expenses and seasonal variations.

Example Calculation (3-month average):
- Month 1: Expenses $120,000, Revenue $30,000 → Net Burn $90,000
- Month 2: Expenses $115,000, Revenue $35,000 → Net Burn $80,000
- Month 3: Expenses 130,000, Revenue $40,000 → Net Burn $90,000
- 3-Month Average Net Burn: ($90,000 + $80,000 + $90,000) ÷ 3 = $86,667

Key Point: Use net burn for your primary runway calculation. It reflects your actual cash consumption.

Your runway calculation must account for changes that will impact your burn rate in the future. A simple current-state calculation ignores what you know is coming.

Planned Hires: Each new employee adds to your burn. A $150,000/year employee with benefits costs approximately $15,000-17,000 per month. If you plan to hire 3 engineers over the next 6 months, your burn will increase by approximately $45,000-51,000 per month by the end of that period.

Revenue Growth: If your revenue is growing, your net burn decreases over time. Model this growth into your runway projection—but be conservative. Revenue rarely grows as fast as founders expect.

Seasonal Variations: Some businesses have predictable seasonal patterns. A retail business might have high Q4 revenue but lower Q1. Factor this into your projections.

One-Time Expenses: Large, non-recurring expenses (equipment purchases, legal settlements, relocation costs) should be accounted for separately. Exclude them from your recurring burn rate but include them in your cash flow forecast.

The most useful runway analysis includes multiple scenarios. Your exact calculation provides one data point—but planning requires understanding a range of possibilities.

Optimistic Scenario: Revenue grows faster than expected, expenses come in below budget. Use this for best-case planning but do not make decisions based on it.

Base Case Scenario: Things go as expected. This is what you are planning for—your core operating assumption.

Pessimistic Scenario: Revenue stalls, unexpected expenses occur. This is what you should plan for—your floor.

Example with Scenarios (Company with $1M cash, $100K base burn):

Scenario / Monthly Burn / Runway
Optimistic: 85,000 / 11.8 months
Base Case: 100,000 / 10 months
Pessimistic: 130,000 / 7.7 months

Make decisions based on your pessimistic scenario. Hope for the best, plan for the worst.

Many founders make errors in their runway calculations that lead to dangerous surprises. Avoid these common mistakes:

Mistake 1: Counting Anticipated Revenue
Including pipeline deals or forecasted revenue that has not closed. Until cash is in the bank, do not count it.

Mistake 2: Using Gross Burn Instead of Net Burn
If you have revenue, using gross burn understates your runway. Always use net burn for the most accurate picture.

Mistake 3: Ignoring One-Time Expenses
Large annual payments, legal fees, or equipment purchases can distort monthly burn. Track these separately.

Mistake 4: Not Accounting for Hiring Plans
Planned hires will increase burn. Factor them into your runway projection.

Mistake 5: Using Stale Data
Calculating runway once and forgetting about it. Recalculate monthly—conditions change quickly.

While simple runway calculation is useful, a detailed cash flow forecast provides much greater insight. Rather than a single runway number, you project cash balances month by month.

How to Build a 12-Month Forecast:

1. Start with your current cash balance
2. Add projected monthly revenue (be conservative)
3. Subtract projected monthly expenses (include planned hires)
4. Repeat for each month in the forecast period
5. Identify when cash reaches zero

This approach reveals when you will need to raise and how much. It also helps you identify months with particularly tight cash positions that might require additional attention.

Tools for Forecasting:
Spreadsheets work fine for early-stage companies. As you scale, consider dedicated financial modeling tools or the assistance of a fractional CFO to build robust forecasts.