The single most-watched cash metric for early-stage businesses: how long can the business operate before running out of money. Calculated as cash on hand divided by monthly net burn rate.
Definition
Runway - the number of months a business can continue operating at its current cash burn rate before running out of money, calculated by dividing cash on hand by monthly net burn.
Formula
Runway (months) = Cash on hand ÷ Monthly net burn
Worked example
A business has $300K cash in the bank and is burning $30K per month net. Runway = $300K ÷ $30K = 10 months.
How to read runway
- 12+ months - comfortable position
- 9-12 months - start planning next steps (revenue acceleration, cost discipline, or financing)
- 6-9 months- act now; the time to secure financing is when you don't urgently need it
- 3-6 months - urgent. Take action this quarter
- Less than 3 months - crisis territory. Daily attention required
Watch out
Two common mistakes:
- Counting uncertain future revenue. Optimistic revenue assumptions stretch runway artificially. Use conservative inputs.
- Ignoring lumpy expenses. Quarterly taxes, annual renewals, equipment purchases all consume cash without showing in average monthly burn. Build them into the calculation.