Cash Burn & Runway — Definition and Calculation for Startups

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 = lifting 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 lifting.

6-9 months : red zone — urgent lifting + 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).