Burn Rate and Runway

With 120,000 in the bank, 20,000 of costs and 10,000 of revenue you burn 10,000 a month and have twelve left. Work out your runway, growth in revenue included.

Currency and number format for

You have left

—

You have left—

You burn a month—

You spend a month—

To stop burning you need—

Break-even—

Situation—

How this was worked out

The formula

runway = cash ÷ (costs − revenue)

What it means

Burn rate is what goes up in smoke each month and runway is the time left before the cash runs out. The sum is a simple division while revenue stays flat; as soon as it grows, the burn falls every month and the runway stretches further than the division suggests.

How to work it out by hand

Subtract the monthly revenue from the costs: that is the burn
Divide the cash by that figure for the months of runway
If revenue is growing, repeat the sum month by month with a falling burn
Check whether you break even before the cash runs out

What is worth knowing

The distinction between gross and net burn matters when negotiating: gross is everything going out and net is what really goes out once revenue is in. An investor looks at net and a cash crisis is set by gross. On growth: if revenue rises fast enough, the burn shrinks every month and at some point disappears, and then the runway stops being a number and becomes infinite. That moment is the one worth working out. The venture-capital rule of thumb is to raise with twelve months ahead of you and to treat under six as urgent.

Frequently asked questions

How much runway should I keep?

At least twelve months if you are going to raise, because the process takes three to six. Below six, your negotiating position deteriorates fast.

Gross burn or net burn?

Net tells you how long the cash lasts; gross, what the structure costs. Both, and they are not interchangeable.

Does revenue growth count?

Yes, and it changes the answer a lot. With sustained growth you can break even before the cash runs out: then there is no runway to run out.

What do I do if the runway is short?

There are only three levers: cut costs, raise revenue, or bring in capital. The first two are yours and are faster than they look.