Runway (Months, Cash Burn)

What it measures

The quotient of available cash (unrestricted bank balances, readily available credit lines) divided by the company's monthly cash burn rate (total cash spent minus total cash collected, averaged over prior 3–12 months to smooth volatility). Does not include restricted cash, equity tied up in illiquid assets, or unpaid receivables.

Why it matters

Runway is the most critical survival metric for pre-profitability companies. It tells you exactly how long you have before you run out of cash and must raise capital, achieve breakeven, or shut down. It focuses decision-making: with 6 months of runway, you know your capital raise must close before month 5, or you will miss payroll. Investors ask for runway first — it signals risk and the urgency of your growth/cost plans.

How to read it

Treat runway as a hard ceiling on your time to profitability or next capital event. If your plan says profitability in 16 months but you only have 12 months of runway, you have a capital gap. Monitor runway monthly and recalculate with updated burn and cash; small changes in either dramatically shift your timeline. A high monthly burn with abundant cash is different from low burn with tight cash — both may show 12 months, but one has room to experiment and the other must execute. Always sanity-check your burn rate and ensure it reflects reality (payroll, hosting, marketing, office, not one-time charges).

What good looks like

Watch-outs

• Using peak or valley burn instead of average. A single month of high spending (or a one-time charge like a tax payment) can distort your burn rate and give false runway. Always average over a full quarter or year to capture true run-rate burn.
• Forgetting to include equity/option exercises and taxes in cash burn. Many founders omit quarterly tax estimates, unvested option repurchases, or board member fees from their burn calculation, then are shocked when runway shrinks faster than expected.
• Assuming burn stays flat when revenue grows. Early SaaS often has decreasing burn as revenue ramps (lower CAC payback, better unit economics). Recalculate runway monthly and assume burn improves or worsens only if you have evidence.
• Counting commitments that haven't closed as cash. A term sheet or customer LOI is not cash. Runway is based on actual money in the bank, not money you expect to receive. Use commitments for scenario planning, never for headline runway.

Worked example