Runway is the number every founder should be able to recite from memory: how many months of cash you have left at your current spend. It's simple arithmetic — but the assumptions underneath it can swing the answer by a year, which is exactly why it's worth understanding properly.
Burn rate: gross vs net
Burn rate is how fast you're spending cash, usually quoted per month. There are two flavors, and the difference matters:
- Gross burn is your total monthly cash outflow — everything you spend, full stop.
- Net burn is outflow minus the cash that comes in: expenses − revenue. It's what your bank balance actually loses each month.
If you spend $120,000 a month and bring in $40,000 of revenue, your gross burn is $120,000 but your net burn is $80,000. Runway is always calculated on net burn, because revenue genuinely extends how long your cash lasts.
The runway formula
With $800,000 in the bank and $80,000 of net burn, runway is $800,000 ÷ $80,000 = 10 months. That's the headline number — the point at which, all else equal, the account hits zero.
"All else equal" is doing a lot of work in that sentence. Runway is a snapshot, and the picture moves the moment revenue or costs change.
Why one growth assumption changes everything
The flat formula assumes revenue and costs stay put. They rarely do. If revenue is growing, net burn shrinks every month, and your real runway is longer than the snapshot suggests — sometimes dramatically.
Take the same company: $800,000 in cash, $120,000 of monthly expenses, $40,000 of revenue today. At a flat 0% growth, that's 10 months. But if revenue grows 10% month over month, it climbs past expenses before the cash runs out — the company reaches cash-flow break-even and, in principle, never hits zero. Conversely, if costs are creeping up faster than revenue, the snapshot overstates your runway and the real number is shorter.
This is why a static "10 months" can be misleading. The honest version models the trajectory: project cash month by month, growing revenue and costs at realistic rates, and see where the line actually crosses zero.
How much runway is enough?
The common rule of thumb is to keep 18 to 24 months of runway after a raise. The logic: it typically takes 6–9 months to close the next round, and you want to negotiate from a position of strength rather than desperation. Start raising when you have roughly 9–12 months left — never wait until you're down to three.
- Under 6 months: danger zone. Raising or cutting costs becomes urgent, and urgency weakens your terms.
- 6–12 months: start the raise now, or have a credible path to profitability.
- 18+ months: healthy. Enough room to hit milestones that justify a higher valuation next time.
Two levers when runway is short
If the number is uncomfortable, you have exactly two levers: spend less or earn more. Cutting net burn extends runway immediately and predictably — it's the lever you fully control. Growing revenue extends it too, and more durably, but it's slower and less certain. Most teams in a tight spot pull both: trim discretionary spend to buy time, while pushing the revenue that bends the curve.
The takeaway
Burn rate is what you lose each month after revenue; runway is cash divided by that net burn. But treat the flat number as a starting point, not gospel — model your real revenue growth and hiring plan to see where the cash actually runs out, and start raising while you still have a year of cushion.