4.9 Burn Rate & Cash Runway

For early-stage startups without steady profits, burn rate and runway are crucial financial health metrics.

• Burn Rate is the rate at which a company spends its cash reserves. In practice, it’s often calculated as (monthly cash outflow – monthly cash inflow). If you’re spending $20,000 a month but only bringing in $5,000, your burn rate is $15,000/month (you’re “burning” $15k in net cash each month).
  
  

• Cash Runway is how many months of operation you have left at the current burn rate. It is simply (Cash in hand) ÷ (Monthly Burn Rate). For example, if you have $150,000 in the bank and burn $15,000 per month, your runway is 10 months. This tells you how long you can survive without additional funding or drastic cuts.
  
  

Tracking burn rate and runway is vital for making timely decisions. A short runway (e.g. 2-3 months) is very risky unless you expect revenue soon. Founders should monitor these numbers constantly. If runway is shrinking towards zero, they must raise more money or slash costs. Investors often ask early-stage companies their runway to gauge risk. (A common rule of thumb: having at least 12-18 months runway after a funding round is considered safe.) Remember, you want to be “default alive” – on track to reach break-even before running out of cash. Spending without watching runway is a fatal mistake for startups.