How to Calculate Cash Runway (and Extend It)

Cash runway is the number of months your business can keep going before it runs out of money if nothing changes. For startups, it’s the most-watched number in the company: it decides when to raise, how fast to hire and how much risk you can take. For any other business going through a loss-making period, it answers the same question: how long have we got?

The formula

Runway (months) = cash in the bank ÷ average monthly net burn

Net burn is cash out minus cash in for the month, excluding any funding such as equity, loans or grants. Gross burn is just the cash out.

Use an average, and look forward

A single month can mislead: an annual software bill or a large customer payment distorts it. Use the average of the last three months for a snapshot, but the more useful figure comes from a forecast. If you plan to hire three engineers next quarter, burn will rise, and runway at today’s burn overstates how long you have.

Worked example: runway from a forecast

A startup has $650,000. Revenue is $14,000 a month and growing 7 percent a month. Costs are about $110,000 a month and rise as the team grows.

Average net burn over the first three months is about $96,000, so runway is about 6.8 months. Growing revenue helps, but not enough to change the picture in the next six months.

When to start raising

Most rounds take about six months from first conversations to money in the bank, often longer in a difficult market. So:

Start raising by = the month cash runs out − the months a raise takes.

In the example, cash runs out in about month 7. Allowing six months to raise, the founders need to start now. If they wait until the balance “looks low”, they’ll be negotiating with only a few weeks of cash left, which is the worst possible position.

How runway changes as you act

Runway is not a fixed number; it responds to every decision. Using the example above, with about $96,000 of net burn:

• Delaying two hires that cost $9,000 a month each lowers net burn to about $78,000 and extends runway from 6.8 to about 8.3 months.
• Cutting $10,000 a month of paid acquisition that isn’t paying back adds roughly another month.
• Moving 50 customers to annual plans at $49 a month, paid up front with a small discount, brings in about $26,000 at once, around a week of extra runway, and improves every month after that if they renew.

None of these alone solves a funding gap, but together they can turn a rushed raise into a calm one. Model each in the forecast before you decide.

Default alive or default dead

A useful question: if nothing changes and you raise no more money, does the business reach profitability before the cash runs out? If revenue growth will overtake burn within your runway, you’re “default alive”. If not, you’re “default dead” and depend on raising. A forecast with revenue growth and planned costs answers this directly.

Nine ways to extend runway

1. Delay hires until funding closes or revenue supports them. Salaries are usually the largest cost.
2. Cut or pause the lowest-return spending, often paid acquisition channels that don’t pay back within a year.
3. Renegotiate large contracts: annual software, hosting commitments, office leases.
4. Collect cash faster: invoice promptly, offer annual plans paid up front, and chase overdue accounts.
5. Offer annual prepayment with a modest discount; for SaaS, this can transform cash flow.
6. Use non-dilutive funding: R&D tax credits, grants and revenue-based finance.
7. Raise prices where customers get clear value.
8. Reduce founder salaries temporarily, where it’s personally sustainable.
9. Consider a bridge from existing investors, ideally agreed before you need it.

Each one can be tested in a forecast before you commit, so you know exactly how many months it buys.

Runway when customers pay annually

For subscription businesses, annual plans paid up front make monthly burn jumpy: a month with several annual renewals can show a positive cash flow, followed by months of heavier burn. Averaging over three months helps, but the clearer approach is a forecast that places each annual payment in the month it arrives. Then runway is read directly from the month the forecast balance crosses zero, and you can see how much of your runway depends on renewals you haven’t yet collected.

Presenting runway to a board or investors

Show runway in a way that invites the right questions:

• Cash today, net burn (three-month average) and runway in months.
• The month cash runs out without new funding, and the date you plan to start raising.
• What’s already committed: hires with signed offers, contracts that raise costs.
• A downside case: revenue growth half of plan, or the round three months late.
• The levers you would pull, and how many months each would add.

Update it every month with actual figures. A runway chart that moves in a predictable way builds far more confidence than a one-off spreadsheet made for a fundraise.

Common mistakes

• Counting money from a round that hasn’t closed. Show it as a scenario until it lands.
• Using gross burn when investors ask about net burn, or the reverse.
• Ignoring planned increases in spending, especially hires already agreed.
• Forgetting annual and one-off costs such as audits, equipment and recruitment fees.
• Not updating it monthly. Runway changes every month; the number from the last board meeting is already out of date.

Runway for established businesses

Runway isn’t only for startups. A business going through a loss-making patch, a seasonal business in its quiet months, or any company planning for a downturn can use the same formula. Divide the cash you have by the expected monthly shortfall, and plan actions well before the date it runs out. A 13-week forecast gives the most accurate short-term view.

Tools

The premium Startup and SaaS templates add a funding schedule, a Runway tab that shows burn and months left at every month end, and scenarios to test hiring plans and a delayed round. For the underlying definitions, see the glossary.