How to Calculate Startup Runway
The formula
net burn = monthly cash out − monthly cash collected
runway (months) = cash on hand ÷ net burnTwo definitions do the heavy lifting here. Gross burn is every dollar leaving the business each month. Net burn subtracts the cash customers actually paid you. Runway is always calculated on net burn — but gross burn is the number you look at when deciding what can be cut, because you cannot cut revenue.
A worked example
A two-founder company has $180,000 in the bank. Payroll, contractors, software, and rent total $38,000 a month. Customers pay $8,000 a month.
| Cash on hand | $180,000 | |
| Gross burn | $38,000 / mo | all cash out |
| Cash collected | $8,000 / mo | not invoiced — collected |
| Net burn | $30,000 / mo | 38,000 − 8,000 |
| Runway | 6.0 months | 180,000 ÷ 30,000 |
Six months is the answer, and it is also the deadline. Everything the company intends to prove has to be provable before month six — or the plan has to change now, while there is still enough cash to change it. Run your own numbers in the runway calculator.
The three levers, in order of speed
- 1. Cut net burn
The fastest lever and the only one entirely within your control. Cutting burn 20% in the example above moves runway from 6.0 to 7.5 months. Note that the relationship is not linear: each cut buys progressively more time.
- 2. Collect faster
Shortening payment terms, invoicing on delivery instead of month-end, or asking for annual prepayment converts revenue you already earned into runway. No new customers required.
- 3. Raise
The slowest and least certain lever. Raising typically takes three to six months from first conversation to money in the bank, which means it must start while runway is still long enough to negotiate from strength rather than from need.
How to read your runway number
Runway on its own is a survival estimate. It becomes a decision only when you put it next to the time your next milestone takes:
- Runway comfortably longer than the milestone: execute, and revisit monthly.
- Runway roughly equal to the milestone: no slack. Either shorten the milestone or extend the runway now — waiting removes both options.
- Runway shorter than the milestone: the current plan cannot finish. Decide deliberately between cutting scope, cutting cost, or raising, before the choice is made for you.
Four mistakes that overstate runway
A signed annual contract billed quarterly gives you a quarter of that money this quarter. Runway built on bookings assumes cash you do not have yet.
Annual insurance, tax payments, and audit fees do not spread themselves evenly. If a large payment lands inside your runway window, add it to the month it lands rather than to a monthly average.
A hiring plan is a burn increase with a date on it. Calculate runway on the burn you will have in three months, not the burn you have today.
A term sheet, a grant decision, or a pending loan is not cash. Model runway without it, then model the upside separately.
Do this next
- Derive your real burn from two bank balances rather than a budget — the burn rate calculator does this in one step.
- Calculate runway on that number, not the budgeted one.
- Write down the date your cash reaches zero. Put it somewhere you see weekly.
- Write down the milestone that must land before that date, and check whether it fits.
Common questions
What is the startup runway formula?
Runway in months = cash on hand ÷ net monthly burn, where net burn is monthly cash out minus monthly cash collected. With $180,000 in cash and $30,000 net burn, runway is 6 months.
What is the difference between gross burn and net burn?
Gross burn is all cash leaving the business each month. Net burn subtracts cash collected from customers. Runway is always calculated on net burn; gross burn tells you how much cost there is to cut.
How much runway should a startup have?
Common practice is to keep 12 to 18 months. Below 6 months, the financing or cost decision becomes urgent because raising and hiring both take longer than founders expect. The right number depends on how long your next milestone takes, not on a rule.
Does revenue count toward runway?
Only collected cash counts. Signed contracts and issued invoices do not pay salaries until the money arrives, so use cash collected rather than booked or recognised revenue.
Keep going
Your runway plus burn-cut scenarios, in about ten seconds.
Derive burn from your bank balances instead of your budget.
When runway pressure turns into a financing decision.
Where cash discipline fits in the six stages from idea to profit.