Runway Calculation

The basic formula

Runway (months) = Cash on Hand / Monthly Net Burn. \$300K cash and \$50K/month net burn = 6 months of runway. The day cash hits zero is 'zero day' — by that day you must have either raised more capital, become cash-flow positive, or wound the business down in an orderly way.

Best practice is to calculate it weekly. As cash and burn move, so does the date — and decisions (hire, cut, raise, pivot) get made against current data, not a 6-month-old plan.

What runway should be telling you

12+ months: comfortable, focus on growth and product. 6-12 months: cautious — deferred hires, consider raising. 3-6 months: action mode — actively raising capital or reducing burn. Under 3 months: crisis — dramatic cuts, bridge financing, or wind-down planning.

The mistake is treating runway as a forecast rather than a discipline. A 9-month runway only buys 9 months if no one slips, no customer churns, and no expense surprises arise. Practical discipline: act on the next-tier behavior 1-2 months before the calendar would otherwise force you. By the time you 'have' 3 months of runway, you should already be acting as if you have 1.

Runway under multiple assumptions

Don't report a single runway number. Report three: runway at current burn, runway with planned cost cuts (showing what discretionary cuts would buy you in months), and runway in a downside scenario (revenue down 30%, churn up 50%). The spread tells you how much risk the current capital plan can absorb.

Be honest about cash that isn't actually available. Restricted cash, security deposits, deferred revenue from customers who could legitimately demand refunds, and cash earmarked for known commitments (acquisitions in flight, severance, lease termination fees) should be excluded from the runway numerator. Many companies report runway based on total cash and discover too late that 20% of it wasn't really available.

The fundraising rule of thumb is to start raising at 12-18 months of runway and to close before 6 months. Below 6 months, you're negotiating from weakness and term sheets get worse; below 3 months, even existing investors may walk away. Plan the calendar backwards from the runway you'll have when the round needs to close.

Re-run the runway calculation immediately after any board meeting that approved a new initiative or major hire. The new spend often pushes runway out by less than people expect because the offsetting revenue takes longer to materialize than planned. Catching the gap immediately after the decision lets you adjust the plan; catching it at the next quarterly close means you're already a quarter into the divergence.