You hear a lot about startups burning through money. Sometimes it sounds like a badge of honor, sometimes a warning. But for anyone building a business, “runway” and “burn rate” aren’t just buzzwords—they’re make-or-break concepts. If you’re new to the startup world or looking to get a handle on your company’s finances, let’s talk about what these actually mean, why they matter, and how you can use them to keep your business alive long enough to see growth.
What Are “Runway” and “Burn”? Why Should Startups Care?
Startups usually start with a pile of cash from savings, friends, or maybe an investor. You need that money to last long enough to develop your product, find customers, and hit milestones. Every month you spend more than you take in, that cash pile gets smaller.
That’s where two words come up: “burn rate” (how fast you’re spending) and “runway” (how long before it’s gone). Most startups don’t turn a profit right away, so knowing your burn and runway is like checking the fuel gauge before a road trip. If you ignore it, you could run out of gas before you even get out of town.
What Does “Runway” Mean for a Startup?
Think of runway as the number of months your company can survive before the cash runs out, assuming things stay the same. It’s basically your lifeline. Let’s say you start with $300,000 in the bank and your company is spending about $30,000 per month more than it brings in. That gives you roughly 10 months of runway.
The formula is simple enough:
**Runway (months) = Current Cash / Monthly Net Burn**
But that’s just the starting point. Runway isn’t static. Every expense and every bit of revenue changes the calculation. If you sign more customers next month, your runway stretches. If you hire more employees, it shrinks.
How to Figure Out Your Startup’s Runway
Calculating your runway is mostly about tracking two numbers: how much money you have in the bank, and what you’re spending (burn rate) each month after revenues.
Here’s a quick breakdown:
– **Step 1:** Check your current cash balance.
– **Step 2:** Find your average net burn per month (more on that next).
– **Step 3:** Divide the cash by the monthly net burn.
This gives you a ballpark estimate. But if your spending goes up (or, hopefully, down), you’ll want to adjust your estimate.
Things That Affect How Long Your Runway Lasts
A lot of founders assume runway just depends on what’s in the bank. But several factors come into play:
– Fixed expenses, like rent or software subscriptions, eat away at your reserves no matter what.
– Lumpy revenues can make monthly averages misleading—one big client or canceled contract can shift the math fast.
– Surprise costs, like a marketing push or an unexpected legal bill, can push your runway off course.
The real trick is being honest with yourself and updating your calculations regularly. You don’t want to wake up one morning and realize the cash is almost gone.
Extending Your Runway Without Sacrificing Growth
Every startup hits a moment where the money is feeling tight. Maybe fundraising is taking longer than you thought. Or maybe a big product launch got pushed back.
You’ve got a few levers to pull:
– Slow down new hiring and consider freelancers over full-time roles.
– Negotiate with vendors for better payment terms or discounts.
– Cut unnecessary software or travel expenses.
– Push up revenue wherever you can—launching features early, or chasing quick wins with existing customers.
The goal isn’t to grind everything to a halt, but to buy yourself a few more months to get things right.
So, What Is “Burn Rate,” Really?
Burn rate is startup lingo for the amount of money you’re losing each month. If you’re bringing in $10,000 per month from sales, but expenses are $40,000 per month, your burn rate is $30,000.
There are two kinds:
– **Gross Burn:** What you spend each month, ignoring revenue.
– **Net Burn:** What you spend minus what you bring in.
Net burn is the number most investors care about. It’s a real look at how fast your bank balance is dropping.
Getting an Accurate Burn Rate Number
Figuring out your burn rate is about being honest with yourself. It’s easy to miss things, like one-time payments or deferred bills.
Here’s what to do:
– Track _all_ expenses, even the ones that feel small.
– Look at your average over three to six months to smooth out quirks.
– Subtract monthly revenue from monthly expenses for net burn.
Keep a close eye on this number—if it jumps without warning, you need to know why.
What Makes Burn Rate Climb?
Typical culprits for a rising burn:
– Team salaries and new hires.
– Ramped-up marketing campaigns.
– Major product investments (hardware, third-party services).
Sometimes burn goes up because you’re investing for growth. That’s not always bad—but make sure you’re also getting closer to revenue targets or critical milestones.
How to Keep Your Burn Under Control
Having a handle on your burn rate isn’t about cutting every corner. You need to spend in order to build and sell.
But here’s what helps:
– Review expenses every month. Don’t wait until the bank balance takes a nosedive.
– Set clear priorities—know what costs are non-negotiable, and what can wait.
– Match big spending periods to expected revenue jumps (for example, boosting marketing just before you launch a feature).
Think of it as steering, not slamming on the brakes.
Planning Your Startup’s Finances: Sustainability Is Key
Every successful founder I’ve talked to mentions how important it is to actually plan their finances—not just react to what’s in the account.
Start with a simple budget. List out all your fixed and variable expenses, and map out expected income, even if it’s not much at first. Include a buffer for unknowns—there’s always something you forgot.
Then, review cash flow every week, not just at month’s end. If it’s looking tight, don’t wait to make changes.
No matter how small your company, you need basic forecasting. Sketch out spending and income for at least six to twelve months, and check your guesses against reality each month.
Cash Flow: The Pulse of Your Startup
Runway and burn only matter because of cash flow. If customers are slow to pay or a big expense comes out of nowhere, you could be “profitable” on paper but broke in reality.
Stay on top of cash coming in and out. Consider offering incentives for early payments, or setting up clear billing processes.
Funding: Should You Bootstrap or Go External?
Sooner or later, most startups look for outside money. The options range from tapping friends and family, to raising money from venture capital or angel investors.
Bootstrapping—growing the company from personal savings or revenues—means you keep control and avoid dilution. But it usually means leaner operations, slower growth, and more personal risk.
External funding can give you the boost to hire or scale faster, but you’ll be giving up some ownership and decision-making.
Weigh the options carefully. Don’t fundraise just because everyone else is, but don’t wait until you’re desperate either. Investors like to see you still have several months of runway left.
When you’re ready to talk to investors, prepare clear answers about your burn, your runway, and your plan to use the new money effectively.
Making the Right Choice for Your Company
Some business owners swear they’d never take outside money. Others wouldn’t have gotten off the ground without it. The best path depends on your industry, product, and how much speed matters.
If you’re unsure, seek advice from founders who’ve been there. Check out forums, read case studies, or connect with local entrepreneurial organizations. For instance, sites like this one can be surprisingly helpful when it comes to real-world insight, especially if you’re working globally or thinking about expansion.
Tools and Support for Staying on Track
You don’t need a finance degree to manage your company’s money. What you do need are systems in place.
– Accounting apps like QuickBooks or Xero make tracking much simpler.
– Forecasting tools (even just a spreadsheet) help map out the next few months.
– At certain stages, talking with a financial advisor or accountant is a smart move, even just for a check-in.
There’s also no shortage of resources—free guides, webinars, podcasts—focused on practical startup finance. Figure out what format fits your style, and try a few before you decide what sticks.
Final Thoughts: Building Good Habits, Not Just Surviving
If you only look at your runway when you’re almost out of cash, you’re too late. The best founders treat financial reviews just like product or customer updates—regular, transparent, and open to change.
There’s no magic solution for turning a three-month runway into a year without tough decisions. Keeping your burn rate in check, making the most of every dollar, and knowing when to seek help are the habits that separate companies that make it from those that don’t.
Keep learning, adapt when things change, and remember—staying honest with your numbers is one of the least glamorous but most valuable parts of the startup journey. Things never go exactly to plan, but a solid handle on your finances gives you a shot at sticking around long enough to see what works.