How to calculate runway and burn rate

How many months until the money runs out. The most important number in an early business, and the least often calculated.

Burn rate is net cash consumed per month. Runway is cash divided by burn — how long you have.

Step-by-step

1. Enter cash in the bank.
2. Enter monthly cash in and out.
3. Read the burn rate and months remaining.

Net burn, not gross

Gross burn is everything going out. Net burn subtracts what comes in, and net is the figure that determines runway. A business spending £40,000 and earning £25,000 burns £15,000 — a very different position from one earning nothing.

Runway is shorter than it looks

Two things make the naive figure optimistic. Costs tend to rise as a business grows, so a burn rate calculated today understates next quarter. And raising money takes months — starting a fundraise with three months of runway means negotiating from a position of visible desperation, which shows in the terms.

The usual guidance is to begin raising with at least six months left, which means your effective runway for planning is the real figure minus six.

What actually extends runway

• Revenue. Every pound earned reduces net burn directly.
• Cutting recurring costs, which compounds every month. Cutting one-offs does not.
• Collecting faster. Money owed to you is not runway.
• Paying more slowly, within terms.

Note that people are usually the largest recurring cost, which is why runway problems become staffing decisions.

Frequently asked questions

What is the difference between gross and net burn?

Gross burn is total cash out; net burn subtracts cash coming in. Runway is based on net burn.

When should I start raising money?

With at least six months of runway remaining. Raising takes months, and negotiating with weeks left produces materially worse terms.

What extends runway most?

Revenue and cuts to recurring costs, because both compound monthly. One-off savings shift the date by days rather than months.