Finance glossary
Cash Burn & Runway — Definition and Calculation for Startups
In one sentence
The cash burn and the runway are the two vital indicators of any startup. Cash burn measures the rate at which a company burns through its cash. The runway indicates how much time he has left before he runs out of money. These two metrics are followed religiously by founders, investors and board members — because they literally determine the survival of the company.
Full definition
Cash burn (or burn rate): net amount of cash spent by a company over a given period (usually monthly).
Runway: number of months a company can continue to operate with its current cash flow at its current burn rate.
Big burn: total monthly expenses (without taking into account income).
Net burn: monthly expenses − monthly income = net cash consumption.
Calculation formula
Net monthly cash burn = Total monthly expenses − Monthly income
Runway (month) = Available cash / Net monthly cash burn
Example: income €45,000, expenses €140,000, cash flow €760,000 → burn €95,000/month → runway 8 months.
Why it matters
Survival indicator. A runway < 6 months is considered critical. < 3 months = fundraising almost impossible.
Timing of lifts. Golden rule of VC: raise when you have 12-18 months of runway. < 6 months = 20-40% discount.
Product-market fit. Burn that decreases naturally = sign of PMF.
Operational decisions. Each hire must be weighed against its impact on the runway.
Benchmarks and thresholds
Runway > 18 months: green zone — growth focus.
12-18 months: yellow zone — prepare for the next step.
9-12 months: orange zone — actively start fundraising.
6-9 months: red zone — urgent fundraising + cost reduction.
< 6 months: black zone — emergency plan (bridge round, M&A).
Limits and pitfalls
Smoothed burn vs real burn. A quarterly rent or a recruitment peak creates months with very high burn.
Revenue ≠ cash flow. In accrual accounting, a turnover of €100K with 60-day DSO only generates ~€50K in monthly cash.
Incurring expenses. An annual AWS contract commits future cash flow.
The complementary Rule of 40. For a SaaS, growth rate + EBITDA margin ≥ 40% is more complete than burn alone.
FAQ
How often to calculate the runway? Weekly for startups < 12 months of runway, monthly otherwise.
What should I do if my runway falls under 6 months? 3 options: reduce costs, accelerate revenue, launch a bridge round.
Can burn be positive? Yes — that’s the goal! A “negative burn” = positive cash flow.
How to predict future burnout? Use a forecast model with 3 scenarios (pessimistic/basic/optimistic).
The runway gives a global horizon; to spot a week under tension, build a cash flow forecast from your deadlines.
Related terms
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