Cash runway: how to calculate it and why it matters
A simple formula, the mistakes that make it misleading and how real-time data keeps it honest.
Cash runway is the number of months your business can keep operating at its current burn rate before the money runs out. The basic formula is simple: cash in the bank divided by average monthly net burn.
Use net burn, not gross burn
Gross burn is everything you spend. Net burn subtracts the cash you bring in. Most planning decisions should use net burn, but keep an eye on gross burn too, because revenue can change faster than costs.
Common mistakes
- Using a single month instead of a three-month average.
- Forgetting annual costs such as insurance and software renewals.
- Counting money that is owed to you but not yet paid.
- Ignoring planned hires that start next quarter.
A live dashboard that updates with every transaction turns runway from a quarterly exercise into a number you can check every morning.