How to work out runway and burn, and what to do with the answer.

Burn rate is how much cash the business consumes each month. Runway is how many months of cash you have left at that rate. Together they decide how much time you have to reach the next milestone, whether that is break-even, a larger customer or a funding round. Most decisions in a young tech startup, from hiring to pricing to when to start fundraising, are really runway decisions.

Gross burn and net burn

• Gross burn is everything you spend in a month: payroll, contractors, software, rent, marketing and so on.
• Net burn is gross burn minus cash received from customers. This is the number that empties the bank.

Use cash figures, not P&L figures, and use an average of the last three months to smooth out quarterly bills. Runway is then cash in the bank divided by average monthly net burn.

Step by step

1. Pull three months of bank data and categorise every payment and receipt. Exclude money raised from investors and one-off items, but list the one-offs separately so they are not forgotten.
2. Calculate gross and net burn for each month and the three-month average.
3. Calculate simple runway: current cash divided by average net burn.
4. Calculate forward runway. Simple runway assumes nothing changes. Add the hires, price rises and contracts you have committed to, month by month, and see where the balance reaches your minimum cash line. The runway and burn calculator does this quickly.
5. Write down the zero-cash date and the decision date. The decision date is when you must start acting if nothing improves. If you might need to raise, a common rule of thumb is to start at least six months before cash runs out, because rounds often take longer than planned.
6. Review monthly as part of the monthly close.

Default alive or default dead

A helpful question: if you change nothing, and revenue keeps growing at its recent rate while costs stay as planned, do you reach break-even before the money runs out? If yes, you are “default alive” and in control of your choices. If no, you are “default dead” and need to change something: cut burn, raise prices, grow faster or raise money. The break-even planner helps you test this.

Worked example

Tidelight is a fictional Bristol tech startup selling scheduling software to dental practices. It has £180,000 in the bank. Gross burn averages £32,000 a month and customer receipts £14,000, so net burn is £18,000 and simple runway is ten months. The founding team had pencilled in two hires adding £9,000 a month from next quarter. Forward runway with the hires drops to just over seven months, and with an 18-month sales cycle for dental groups that leaves no time to raise.

The team modelled three options: hire both, hire one salesperson only, or hire neither and raise prices for new customers. Hiring one salesperson and introducing an annual prepayment discount kept forward runway above nine months and moved the projected break-even point inside the runway. That made Tidelight default alive and turned fundraising from a necessity into an option.

Burn efficiency

Burn is not bad in itself; wasted burn is. The burn multiple (net burn divided by net new annual recurring revenue in the same period) shows how much cash you spend to add each pound of recurring revenue. Lower is better. The Rule of 40 and burn multiple tool lets you check it.

Common mistakes

• Calculating runway from P&L losses rather than bank movements.
• Using one unusually good or bad month instead of an average.
• Ignoring committed future costs, such as a hire who has accepted but not started.
• Counting expected investment or grant money before it is in the bank.
• Starting a raise with three months of runway left and negotiating from weakness.

What to measure

• Monthly gross burn, net burn and three-month averages.
• Simple runway and forward runway in months.
• Your zero-cash date and decision date.
• Burn multiple once you have recurring revenue.