Profitable businesses still fail when they run out of cash. Runway is the simplest early-warning measure you can track: how many months the business could keep operating, at its current pace, before the bank balance hits zero.
Burn rate
Gross burn is everything you spend in a month. Net burn is what you spend minus what you collect — the amount your cash balance actually falls each month.
- Net Burn
- equals Cash Out per Month − Cash In per Month
- Runway (months)
- equals Cash on Hand ÷ Net Burn
A business with $150,000 in the bank that collects $40,000 a month and spends $55,000 has a net burn of $15,000 and about 10 months of runway.
Use cash, not profit
Runway is about cash moving in and out of your bank account, which can differ sharply from the profit on your income statement:
- Revenue you’ve invoiced but not collected doesn’t pay bills.
- Loan repayments reduce cash but aren’t expenses on the income statement.
- Annual costs — insurance, software renewals, taxes — arrive in lumps.
- Inventory purchases use cash long before the goods are sold.
The most reliable burn figure is the average monthly drop in your bank balance over the last three months, adjusted for anything unusual.
Make it a forecast, not a snapshot
Simple runway assumes nothing changes. In practice, revenue may be growing or shrinking, and you may be planning to hire. Projecting month by month — adding expected revenue, subtracting expected costs — gives a more honest picture, and shows when the business might become self-sustaining.
Levers that extend runway
- Collect faster: shorter payment terms, deposits, prompt invoicing.
- Pay on terms: use the full payment period your suppliers allow.
- Cut or defer costs: start with spending that doesn’t affect revenue.
- Raise prices: often the fastest lever, since it needs no new customers.
- Arrange financing early: credit is easier to get before you urgently need it.
Model your own numbers with the Cash Runway Calculator, and see the sales needed to stop burning cash with the Break-Even Calculator.
This guide is general information, not financial, tax or legal advice. See our disclaimer.