Burn Rate and Runway, Explained

After reading this you can compute your company's net monthly burn, turn it into a runway in months, and read the number the way an investor would.

Burn rate is how fast a company spends its cash reserve. Runway is how long that reserve lasts at the current pace. Both are simple arithmetic, but they drive some of the most consequential decisions a founder makes: when to hire, when to cut, and when to start raising money.

Here is the hook. A company holds 250000 in the bank. It spends 30000 a month and brings in 10000 a month. It loses 20000 of cash every month, so the bank balance hits zero in 250000 / 20000 = 12.5 months. That is the runway. Everything else in this article is a refinement of that one division.

What burn rate and runway actually measure

Two terms get used loosely, so pin them down.

Gross burn: Total cash going out each month, ignoring revenue. In the hook example, gross burn is 30000.
Net burn: Cash out minus cash in. It is the real rate your bank balance shrinks. In the hook, net burn is 30000 - 10000 = 20000.
Runway: Cash divided by net burn: how many months until the balance reaches zero, assuming nothing changes.

The calculator works with net burn because that is what empties the account. When people quote a single "burn rate" without saying which one, they usually mean net burn. Always confirm, because the two differ by exactly your revenue.

Runway measures cash, not profit. A company can be losing money on paper yet have years of runway if it holds a large balance, and a profitable-on-paper company can run out of cash if customers pay late. Cash timing is what kills companies.

When to use it, and when not to

Runway is the right tool when your monthly cash flows are roughly steady and you want a quick horizon: "how long before this matters?" It is a planning number, useful for setting a fundraising deadline or deciding whether a new hire is affordable.

It is the wrong tool when cash flows are lumpy or growing fast. If revenue doubles every quarter, a flat-rate runway understates how long you last. If a large annual bill lands in month 3, a flat-rate runway overstates it. In those cases build a month-by-month cash forecast instead, where each month has its own inflow and outflow. The single-number runway is a first approximation, not the forecast.

The formula and why it works

Net burn is the difference between what leaves and what arrives:

B = E - R

Here B is net monthly burn, E is monthly expenses, and R is monthly revenue. If E \gt R the company burns cash. If E \lt R then B is negative, meaning the balance grows and runway is effectively unlimited at the current pace.

Runway is the cash you hold divided by that burn:

M = \frac{C}{B} = \frac{C}{E - R}

where M is runway in months and C is cash in the bank. The intuition is a bathtub draining. The water level is C. The net outflow per month is B. Time to empty equals level divided by drain rate. That is the whole idea.

The balance at the end of month t follows a straight line:

C_t = C - B \cdot t

Set C_t = 0 and solve for t and you get t = C / B again, which is why the balance chart is a straight line sloping down to zero.

A worked example with the demo numbers

250000 cash, 30000 out, 10000 in

Net burn: B = 30000 - 10000 = 20000 per month.
Runway: M = 250000 / 20000 = 12.5 months.
Balance after 6 months: 250000 - 20000 \times 6 = 130000.
Balance after 12 months: 250000 - 20000 \times 12 = 10000.
The account crosses zero halfway through month 13, matching the 12.5 figure.

So this company has a year and a half less than most investors want to see. It should either raise money, grow revenue, or cut expenses well before month 12.

A straight line from 250000 down to zero, crossing the axis at month 12.5.

See how each lever moves the runway

Runway responds to three levers: cash, expenses, and revenue. The two that touch burn (expenses and revenue) act with leverage, because they change the denominator. Adding a dollar of revenue and cutting a dollar of expense have the same effect on burn. Raising more cash only shifts the numerator, so its effect is linear and less dramatic.

Reading and interpreting the result

A runway number is a deadline in disguise. Read it against a few benchmarks.

Runway in months at 250000 cash for different net burn rates
Expenses	Revenue	Net burn	Runway (months)
30000	10000	20000	12.5
30000	15000	15000	16.7
25000	10000	15000	16.7
30000	20000	10000	25.0
30000	25000	5000	50.0
30000	30000	0	unlimited

Notice the leverage. Cutting burn from 20000 to 15000 (a 25 percent cut) lifts runway from 12.5 to 16.7 months, a 34 percent gain. Cutting to 5000 quadruples the runway. This is the hyperbola in the formula: as burn falls toward zero, runway rises toward infinity.

Investors typically want 18 to 24 months of runway right after a round, and fundraising itself eats roughly the last 6 months of your reserve. So if you are at 12.5 months, you are already inside the window where you should be raising or cutting. Start before you have to.

Common mistakes

Most runway errors come from feeding the formula the wrong monthly figure.

Using an average that hides spikes. If you pay salaries monthly but insurance and taxes annually, a smooth monthly average can be right on paper yet wrong in the month the big bill lands. Check that you can survive the worst month, not just the average one.
Counting committed but unpaid money as cash. A signed contract is not cash in the bank. Runway uses the balance you can actually spend today.
Confusing gross and net burn. Quoting a 12.5 month runway from gross burn of 30000 gives 250000 / 30000 = 8.3 months, which understates your position. Be explicit about which burn you used.
Ignoring growth or decay in revenue. Flat-rate runway assumes revenue stays put. If it is climbing, your real runway is longer; if a big customer is about to churn, it is shorter.
Forgetting that runway resets when conditions change. Every hire, price change, or new contract changes burn, so recompute monthly rather than trusting a number from last quarter.

Do not treat a negative net burn (revenue above expenses) as "infinite runway" and stop watching. One lost customer or one new hire can flip you back to burning cash. The line only slopes up while the inputs hold.

Related tools

Runway sits on top of your unit economics, so the tools that shape burn are worth a look. The Break-Even Calculator tells you the revenue that would take net burn to zero and make runway unlimited. To improve the revenue side, the Margin Calculator and Contribution Margin Calculator show how much of each sale actually covers your costs. For pricing decisions use the Markup Calculator. If you invoice with tax, the Invoice VAT Breakdown separates the cash you keep from the tax you merely collect. When weighing a one-off spend, the Payback Period Calculator shows how long it takes to earn back, and if you pay a sales team, the Sales Commission Calculator helps you fold commission into expenses.

Frequently asked questions

Is burn rate the same as monthly expenses?

No. Monthly expenses are gross burn. Net burn subtracts revenue. With 30000 expenses and 10000 revenue, net burn is 20000. Runway uses net burn because that is what drains the account.

What runway do investors want to see?

Commonly 18 to 24 months after a funding round. Since raising itself can take about 6 months, a runway near 12 months means you should already be planning your next raise or trimming costs.

What happens if revenue is higher than expenses?

Net burn goes negative, so the balance grows rather than shrinks and runway is unlimited at that pace. The calculator will show this. Keep watching, because a single change can flip you back to burning.

How often should I recompute runway?

Monthly, using your actual closing bank balance and the latest expense and revenue figures. Runway from three months ago can be badly out of date after a hire or a lost customer.

Does this account for growing revenue?

No. The single-number runway assumes flat monthly cash flows. If revenue is climbing steadily, build a month-by-month forecast where each month carries its own inflow, then read the month the balance first hits zero.

This is an educational estimate, not financial advice. Talk to a qualified adviser before making money decisions.

Try it yourself in the tool