How to calculate cash runway and make it last longer

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When you calculate cash runway, you find out how many months your business can keep operating with the cash it has before it needs more money from sales, investors or loans. It is the single most important number for a startup or a business going through a difficult period, because it tells you how long you have to fix problems or raise funds. This guide explains the formula, gross and net burn, worked examples, scenario planning and practical ways to extend your runway.

The runway formula

The basic formula is simple:

Cash runway (months) = Cash available ÷ Monthly net burn

Cash available is the money you can actually use: bank balances and cash equivalents, excluding money you owe others soon, such as collected sales tax, customer deposits you may need to refund, or restricted funds. Monthly net burn is how much cash you lose each month after income. If you have 300,000 in cash and lose 25,000 a month, your runway is 12 months.

Our cash runway calculator does this for you and shows when cash runs out.

Gross burn vs net burn

Gross burn is your total monthly cash spending: salaries, rent, software, marketing, contractors, everything. Net burn is gross burn minus cash coming in from customers. A company spending 80,000 a month with 55,000 of monthly revenue has a gross burn of 80,000 and a net burn of 25,000.

Use net burn for runway. Watch gross burn too, because if revenue drops suddenly, gross burn shows your worst case. A business with high revenue and high costs can see its runway shrink fast if revenue falls.

Calculating burn accurately

Use cash, not accounting profit. Profit includes items such as depreciation that do not use cash, and excludes cash movements such as loan repayments, equipment purchases and tax payments. Look at actual cash leaving and entering your bank accounts.

Average over three months to smooth out lumpy months, such as annual software renewals or quarterly tax payments. If your costs are rising, for example because you just hired, use the forward-looking monthly figure rather than the past average, or your runway will look longer than it is.

Worked example: a small startup

A startup has 450,000 in the bank. Its monthly costs are 60,000 in salaries, 8,000 in software and hosting, 5,000 in office and other costs, and 12,000 in marketing, a gross burn of 85,000. It earns 35,000 a month from customers, so net burn is 50,000.

Runway = 450,000 ÷ 50,000 = 9 months. But the founders plan to hire two engineers next month, adding 18,000 a month. With net burn of 68,000, runway falls to about 6.6 months. That changes their fundraising timeline significantly: they should start raising almost immediately.

Worked example: a profitable service business

An agency has 120,000 in the bank and is roughly break-even most months, but a large client has just given notice. That client's 30,000 monthly revenue will disappear in two months, while costs stay at 90,000. Expected revenue afterwards is 60,000, so net burn becomes 30,000 a month.

Runway from that point is about 4 months, less the cash used in between. The owner now has a clear deadline to win new clients or cut costs. Without the calculation, the business might have drifted for months before realising the danger. See how to calculate break-even point for the revenue needed to stop burning cash.

Scenario planning

A single runway number assumes the future looks like today. Build three scenarios:

• Base case: your realistic plan for revenue and costs.
• Downside case: revenue grows slower or falls, a big customer leaves, or fundraising takes longer.
• Upside case: growth accelerates.

Plan your decisions around the downside case. If you would run out of cash in the downside case before you could react, cut costs or raise money sooner. A simple spreadsheet with monthly cash in, cash out and ending balance for the next 12 to 18 months is enough.

How much runway is enough?

Rules of thumb vary. Many startup advisers suggest aiming for 18 to 24 months of runway after raising funding, because fundraising itself often takes three to six months, and you want time to reach milestones before the next raise. A good time to start raising is when you still have 6 to 9 months of runway, not when you are down to two or three.

For established small businesses, a cash reserve of three to six months of costs is a common target, giving time to react to downturns without panic.

Warning signs

• Runway below six months without a clear funding or profitability plan.
• Net burn rising faster than revenue.
• Customers paying later than they used to.
• Reliance on one or two customers for most revenue.
• Large annual payments coming up that are not in your monthly burn.
• Planning hires based on fundraising that has not closed.

Ways to extend runway: reduce costs

Look at costs in order of size. Salaries are usually the largest; pausing hiring is often the first lever. Review software subscriptions, which accumulate quietly; many businesses find tools nobody uses. Our software price tracker helps spot price increases. Negotiate with suppliers, move to annual billing only where you are sure, and pause marketing channels that do not produce customers at a reasonable cost.

Cut deliberately rather than across the board. Protect spending that directly drives revenue and retention.

Ways to extend runway: improve cash in

• Collect faster: shorter payment terms, deposits, prompt invoicing and reminders. See how to invoice international clients.
• Annual prepayment: offer a discount for paying a year upfront.
• Raise prices where customers get clear value; see margin vs markup.
• Focus sales on deals that can close within your runway.
• Sell surplus assets or reduce inventory.

Ways to extend runway: financing

Options include equity funding from investors, loans and credit lines, revenue-based financing, grants, and supplier credit. Each has costs and conditions. Debt adds repayments to future burn; equity dilutes ownership. Raise before you are desperate, because investors and lenders offer better terms to businesses that do not urgently need money.

Tracking runway monthly

Update your runway each month when you close your books. Track cash balance, gross burn, net burn and runway in a simple dashboard, and compare with your forecast. If runway shortens unexpectedly, find out why immediately. Accounting software that connects to your bank accounts makes this quick; see the accounting software ranking and QuickBooks vs Wave.

Runway and currency risk

If you hold cash in one currency and spend in another, exchange rate movements change your runway. A company with dollar funding and costs in a local currency may gain runway if the local currency weakens, or lose it if it strengthens. Companies with local currency cash and dollar costs, such as software subscriptions or foreign contractors, face the reverse. Hold cash in the currencies you spend where possible; see what a multi-currency business account is.

Communicating runway

Share runway honestly with co-founders and investors. Investors expect regular updates, and surprises damage trust. With your team, share enough to explain decisions such as hiring freezes without causing panic. A clear plan, such as "we have 10 months of runway and will start raising in month 3", builds confidence.

Related metrics

Runway works together with other numbers. Unit economics, such as customer lifetime value and acquisition cost, tell you whether growth will reduce or increase burn; see LTV and CAC explained and the LTV and CAC calculator. The break-even point tells you the revenue needed to stop burning cash, and the break-even calculator works it out.

Common mistakes

• Using accounting profit instead of cash flow.
• Including cash you owe others, such as sales tax collected.
• Using past burn when costs are about to rise.
• Ignoring annual or quarterly payments.
• Starting to raise money too late.
• Not updating runway monthly.

Building a 12-month cash forecast

A runway number is more useful when backed by a monthly cash forecast. Build a simple spreadsheet with one column per month for the next 12 to 18 months. List opening cash, then cash in: customer receipts based on realistic sales and payment timing, plus any expected funding or loans. List cash out: salaries, contractors, rent, software, marketing, taxes, loan repayments and planned purchases. Closing cash becomes next month's opening cash.

The month where closing cash falls below a safe minimum is your real runway. Update the forecast monthly with actuals, and note where you were wrong; forecasting improves with practice.

Runway for bootstrapped businesses

Bootstrapped businesses funded by their own revenue think about runway differently: the goal is usually to stay cash-positive or close to it, keeping a reserve for downturns. Runway matters when you invest in growth, such as hiring ahead of revenue, launching a product or opening a location. Before such investments, calculate how many months of reserve they consume and what has to go right for them to pay back. Keep a buffer for unexpected costs, such as equipment failure or a large client paying late.

Seasonal businesses

If your sales are seasonal, average burn can mislead. A business that earns most of its revenue in a few months may burn heavily for the rest of the year. Use a monthly cash forecast to find the lowest cash point in the year, usually just before the busy season, and make sure you have enough reserve or credit to get through it. Negotiate supplier terms and plan stock purchases around the cycle.

Runway and hiring decisions

Each hire adds fixed cost and shortens runway. Before hiring, calculate the monthly cost including taxes and benefits, how it changes runway, and how long until the hire generates or protects enough revenue to justify it. For international hires, include employer costs and any provider fees; see employer of record cost. Contractors can be a more flexible option while runway is short, provided the roles genuinely suit contracting.

Example: a simple runway dashboard

A founder tracks five numbers at the top of a one-page monthly report: closing cash, gross burn, revenue received, net burn, and runway in months, each with last month's figure for comparison. Below that, a short note explains any big change, such as an annual insurance payment or a large customer paying late. Investors and co-founders read the page in two minutes and see immediately whether the business is on track. Building this habit early makes fundraising conversations easier, because the numbers are already clean and consistent.

Runway and taxes

Taxes are a common blind spot in runway calculations. Sales tax or VAT collected from customers is not your money; it must be paid to the tax authority, so exclude it from available cash. Income tax or corporate tax payments may come once or twice a year in large amounts; include them in your forecast in the months they are due. Payroll taxes are part of monthly costs. Setting aside tax money in a separate account avoids nasty surprises.

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