HOW TO CALCULATE YOUR STARTUP’S RUNWAY

A startup’s runway (also called cash runway) is how many months your startup has before it runs out of cash. The longer your runway, the more time you have to build, make mistakes, course correct and grow your startup.

Calculate your runway using 12-36 months of company numbers.

You may not have revenue but you'll always have expenses. You’ll need to know your startup’s revenue and expenses for the chosen period. The longer the time period and the more numbers you have, the more accurate your runway projection will be.

Monthly expenses vary but generally include: 1. fixed costs like salaries, rent, and taxes, 2. Marketing, events, conferences, and meetings to support customer acquisition, 3. expenses required to maintain assets, and 4. cost of revenue, or how much it costs to deliver a product or service to paying customers. The total of these monthly expenses is also called a burn rate.

1. What’s your starting cash balance?

Startup runway = current cash balance ÷ burn rate

I’ll use a fictitious company called PowerUp and we’ll measure burn rate for a 12 month period.

Write down your cash balance at the start of the time frame you’ve selected. For example, six months ago, PowerUp had $7,000 in its bank account. The company also raised $60k in grants

Example starting cash balance: $67,000

2. What’s your ending cash balance?

What’s your current cash balance, or your cash balance at the end of the period you’re measuring? For example, PowerUp had $20k in the bank at the end of the twelve-month time frame.

Example ending cash balance: $20,000

3. What’s your burn rate?

Using your starting and ending cash balance, calculate your startup’s burn rate. Burn rate measures how much money you’re “burning,” or losing, each month. In other words, burn rate tells you your negative cash flow.

Two ways to calculate burn rate:

 Net burn rate: Net burn rate measures how much cash you lose each month when you consider both income and expenses.

 Gross burn rate: Gross burn rate estimates how much cash you spend each month but doesn’t take income or positive cash flow into account.

Net burn rate is a more accurate metric because it accounts for cash inflows (revenue or additional funding) like investor funds, sales, loans, etc.

Here’s an example using PowerUp’s numbers to calculate burn rate and startup runway.

Net burn rate = (starting cash balance - ending cash balance) ÷ number of months

Net burn rate = ($67,000 - $10,000) ÷ 12 months

Net burn rate = $57,000 ÷ 12 months

Net burn rate = $4,750 monthly burn

Taking all cash inflows and outflows into account, PowerUp is losing nearly $4,750 each month.

4. What’s your startup runway

To calculate how long your business can survive if your income and expenses remain the same, take your current cash balance and divide it by your average burn rate.

Startup runway = current cash balance ÷ burn rate

Startup runway = $67,000 ÷ $4,750

Startup runway = 14.105 months

PowerUp has a startup runway of just over 14 months.