Burn rate is how much cash your business spends per month. Runway is how many months you have before the money runs out. These two numbers are among the most important metrics for any early-stage or growth-stage business, and many founders do not track them closely enough until they are already in trouble.
Two Types of Burn Rate
Gross burn rate is your total monthly operating expenses: everything you spend before any revenue comes in. Net burn rate is gross burn minus monthly revenue. Net burn is the number that actually matters for runway calculations.
Runway Formula
Runway (months) = Cash / Net Burn Rate
Where Net Burn = Monthly Expenses − Monthly Revenue
How Much Runway Is Enough
The standard guidance is 18 months minimum. Here is why that number matters: fundraising takes longer than most founders expect, often 6-9 months from first conversations to cash in the bank. You need enough runway to run a fundraise without desperation. Desperate founders accept bad terms. Founders with runway have negotiating use.
If your runway drops below 9 months without a fundraise underway, start immediately. If it drops below 6 months, cut costs aggressively and call every warm investor contact today. The math is not forgiving.
Extending Runway Without Raising
Before raising, look at both sides of the equation: revenue and expenses.
- Accelerate revenue: Offer annual payment discounts to existing customers. Even 10% of monthly customers switching to annual significantly improves near-term cash position.
- Cut non-revenue-generating spend: Cancel tools and subscriptions that are not directly tied to either revenue generation or product delivery. A $500/month tool that nobody uses can stay cancelled for a year without anyone noticing.
- Delay non-critical hires: Every hire you delay preserves 3-4 months of payroll per person. Hire when revenue justifies it, not in anticipation of projected growth.
Written by Marcus Vance
Wharton MBA alumni, business strategist, and author at SuccessInformatics.