How to Calculate Your Startup's Runway (With Examples)
Your runway is the most important number in your startup. Here's the exact formula you need, plus practical examples and common mistakes to avoid.
The Quick Formula
Runway (months) = Cash Balance ÷ Monthly Burn Rate
Example: $600,000 ÷ $50,000/month = 12 months of runway
Every founder should know their runway down to the month. Yet in our experience as fractional CFOs, we regularly meet founders who either don't know their runway or have calculated it incorrectly.
This isn't just a bookkeeping exercise. Your runway determines when you need to start fundraising, whether you can make that key hire, and ultimately whether your company survives long enough to succeed.
Let's walk through exactly how to calculate your runway correctly, including the nuances that trip up most founders.
The Basic Runway Formula
The core formula is straightforward:
Runway = Cash Balance ÷ Monthly Burn Rate
Result is expressed in months
Simple enough, right? But the devil is in the details. Both numbers—your cash balance and your burn rate—require careful consideration.
What Counts as Cash?
When calculating runway, only include truly liquid assets:
Include in Your Cash Balance
- ✓Bank account balances – Checking and savings accounts
- ✓Money market accounts – Immediately accessible funds
- ✓Short-term Treasury bills – If maturing within 30 days
- ✓Committed credit lines – Only if drawn (not just available)
Don't Include
- ✗Accounts receivable – Cash you're owed but haven't received
- ✗Committed but unwired funding – Until the check clears
- ✗Inventory value – Not liquid
- ✗Prepaid expenses – Already spent
- ✗Available credit lines – Not cash until drawn
Pro tip: Use yesterday's bank balance, not your accounting system's cash balance. Outstanding checks and pending transactions can make your accounting cash look different from your actual available funds.
Calculating Your Burn Rate
Your burn rate is how much cash you spend per month. There are two types:
Gross Burn
Total monthly operating expenses before any revenue
Gross Burn = Total Monthly Expenses
Net Burn
Cash consumed after accounting for revenue
Net Burn = Expenses - Revenue
Which should you use? For runway calculations, use net burn—it reflects your actual cash consumption. However, always know both numbers. If you're pre-revenue, gross burn and net burn are the same.
Calculating Your Monthly Burn
The most accurate method is the "cash flow" approach:
Net Burn = Starting Cash - Ending Cash (for the period)
Look at your last 3 months and calculate the average. Here's why:
- Month-to-month variation – Some expenses hit quarterly or annually
- Revenue timing – Collection cycles affect cash inflows
- One-time costs – Equipment purchases, deposits, etc.
Step-by-Step Example
Let's walk through a real calculation for a typical seed-stage startup:
Sample Company: TechStart Inc.
Step 1: Determine Cash Balance
Bank account balance (as of today): $847,000
Step 2: Calculate 3-Month Average Net Burn
- October: Starting $950K → Ending $891K = $59K burn
- November: Starting $891K → Ending $847K = $44K burn
- December: Starting $847K → Ending $780K = $67K burn
Average monthly burn: ($59K + $44K + $67K) ÷ 3 = $56,667
Step 3: Calculate Runway
$847,000 ÷ $56,667 = 14.9 months
Why December's burn was higher
In this example, December included a quarterly AWS payment and year-end bonuses. This is exactly why you use a 3-month average rather than any single month—it smooths out these variations.
Adjusting for Revenue Growth
The basic formula assumes your burn rate stays constant. But if you're growing revenue, your runway might be longer than the simple calculation suggests.
Here's how to factor in growth:
Adjusted Runway Calculation
If your revenue is growing, project it forward and calculate when cumulative cash outflows will exceed your starting cash.
| Month | Revenue | Expenses | Net Burn | Cash Balance |
|---|---|---|---|---|
| Start | - | - | - | $500,000 |
| Month 1 | $20,000 | $70,000 | -$50,000 | $450,000 |
| Month 2 | $25,000 | $70,000 | -$45,000 | $405,000 |
| Month 3 | $31,000 | $70,000 | -$39,000 | $366,000 |
| ... | ... | ... | ... | ... |
| Month 12 | $89,000 | $70,000 | +$19,000 | $182,000 |
In this example, assuming 25% month-over-month revenue growth, the company reaches cash flow positive at month 12 with $182K remaining. Static runway calculation would have shown only 10 months.
Warning: Be realistic about revenue projections. Most startups overestimate growth. It's better to use conservative assumptions and be pleasantly surprised than to run out of cash.
Scenario Planning
Smart founders don't just calculate one runway number—they model multiple scenarios. This is where cash flow forecasting becomes invaluable.
Best Case
Revenue hits targets, no unexpected costs
18 months
Base Case
Current trajectory continues
14 months
Worst Case
Revenue misses, hiring accelerates
9 months
Your base case should be your primary planning number, but always know your worst case. If your worst case is uncomfortable (under 6 months), it's time to either cut burn or start fundraising immediately.
Common Calculation Mistakes
Mistake #1: Using a Single Month's Burn
One month might be unusually high or low. Always use at least a 3-month average to account for timing variations in expenses and revenue collection.
Mistake #2: Forgetting Planned Expenses
About to hire two engineers? Your burn rate is about to jump. Factor in known upcoming expenses when projecting runway.
Mistake #3: Counting Committed (But Not Received) Funding
Until the wire hits your account, don't count it. Deals fall through, wires get delayed, and investors change their minds.
Mistake #4: Ignoring Annual and Quarterly Payments
Insurance, software licenses, and bonuses often hit quarterly or annually. Make sure your burn rate calculation captures these.
Mistake #5: Over-Optimistic Revenue Projections
When in doubt, be conservative. It's better to have "extra" runway than to scramble for emergency funding.
How Often to Check Your Runway
Your runway should be a number you know without thinking. Here's a framework for monitoring:
| Current Runway | Review Frequency | Action |
|---|---|---|
| 18+ months | Monthly | Standard monitoring |
| 12-18 months | Bi-weekly | Start fundraising planning |
| 6-12 months | Weekly | Active fundraising or cost cutting |
| <6 months | Daily | Emergency mode |
If you're under 12 months of runway and not yet fundraising, read our guide on how much runway you need before Series A and consider whether it's time to extend your runway.
Key Takeaways
- 1Use actual bank balance, not accounting cash, for accuracy
- 2Calculate burn rate using a 3-month average to smooth variations
- 3Model multiple scenarios: best case, base case, and worst case
- 4Don't count funding until it's in your bank account
- 5Review more frequently as runway decreases
Need Help With Cash Management?
Eagle Rock CFO helps seed and Series A startups build financial models, manage runway, and prepare for fundraising. Get the financial clarity you need to make confident decisions.
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