If you’re running a startup, you probably hear a couple of words nearly every week: runway and burn rate. But most founders—especially first-timers—admit that these finance basics felt confusing at the start. Let’s clear the air and really break down what they mean, how to handle them, and why it matters if you want your company to last longer than a summer internship.
What Does “Runway” Mean for Startups?
Think of runway as the number of months your startup can keep the lights on before running out of cash. Imagine a plane about to take off—runway is the amount of ground you have left before hitting the end.
To get your runway, you basically take your total available cash and divide it by your burn rate (we’ll get to that in a minute). For example, if you’ve got $120,000 in the bank and you’re burning $20,000 each month, you have six months of runway. That means if nothing changes—if revenue stays the same and spending stays the same—you’ll run out of money in six months.
Why is this important? Knowing your runway helps you make decisions on hiring, growth, and, honestly, how aggressively to chase that next investor meeting. If you take your eye off this number, trouble can sneak up fast.
How Do You Calculate Runway?
Calculating runway is straighforward. Here’s a quick formula:
Runway (in months) = Current Cash Balance ÷ Monthly Net Burn Rate
But don’t just use the number you see at the bottom of your bank statement. Double-check that you’ve included everything—outstanding bills, credit you actually have access to, and any back taxes.
It’s better to get an honest answer than an optimistic one. Trust me, investors can spot the difference.
What Affects Runway?
A lot can change your runway, sometimes even overnight. Winning a big new customer contract can make your cash last much longer. Adding a few new hires, moving to a bigger office, or a sudden tech mishap can make runway shorter.
Other factors? Payment timing is a big one. If your customers are slow to pay, or you’re fronting cash for hardware, runway can shrink, even if sales look okay on paper.
Seasonal businesses also need to watch for dry spells where revenue dips but bills keep rolling in.
How to Make Your Runway Last Longer
No one loves cutting costs, but some moves are less painful than others. Automate manual work where you can. Look twice at recurring software fees—are you using everything you’re paying for?
If you don’t need a big, flashy office, consider co-working or remote work policies. Sometimes, switching to contractors instead of full-time hires can give you breathing room without major layoffs later.
The trick is to keep growth alive without losing sight of every dollar. It’s not about penny-pinching on lunch, but watching for money that’s wasted.
What’s Burn Rate? Why Should You Care?
Burn rate is just how much cash you’re spending each month to keep the startup going. Usually, people mean “net burn rate,” which subtracts your monthly revenue from your total monthly spend.
Say you spend $35,000 on salaries, marketing, rent, and everything else—but you make $10,000 each month in revenue. Your net burn rate is $25,000.
This matters because it’s basically the other side of runway. If your burn rate is sky-high compared to your available cash, you either need to cut spending or find new cash—fast.
How to Calculate Your Burn Rate
There’s a simple way to figure out your net burn rate:
Net Burn Rate = Monthly Expenses – Monthly Revenue
Some founders make a mistake here. They only count their bigger costs—like payroll or product development—but skip smaller stuff (subscriptions, office snacks, travel). Stack up three months’ worth of bank statements and add every dollar that leaves your account.
Why three months? That’ll smooth out weird lumps from one-off purchases or irregular invoices.
How Do You Know If Your Burn Rate Is Too High?
There’s no single magic number. If you’re growing fast and you’ve just raised a new funding round, a higher burn can make sense. Investors might even expect it.
But here are a couple of warning signs:
– Your runway drops below six months, and you’re not in sight of a new funding round.
– Revenue isn’t growing, but expenses keep creeping up anyway.
– You’re burning money on things that don’t speed up product or user growth—like unnecessary perks or over-the-top offices.
Ask yourself: If all your investors disappeared tomorrow, how long would you last? If the answer scares you, your burn rate’s probably too high.
Spending on Growth—Without Losing Your Shirt
This is the tightrope walk. Startups have to spend to grow. But growth spending should feel like putting gas in a race car, not tossing money into a bonfire.
Projects like product launches, marketing campaigns, or key hires should have clear goals. For instance, try running smaller marketing tests first—see what gets traction, then scale up. If you’re going to spend on ads, make sure you’re set up to measure what comes back.
Growth at any cost rarely works, and it almost never makes fundraising easier. If an investor looks at your books and sees wild spending with little return, they worry.
Smart Ways to Cut Costs, Not Progress
If you have to trim expenses, start with non-essential areas. Look for duplicate tools, underused platforms, or fancy vendors that don’t match your real needs. Plenty of founders have saved serious cash just by policing company subscriptions.
Talk to your existing partners, too. Sometimes vendors offer lower rates if you ask—or even just tell them you’re considering options.
On the people side, cross-train team members so one person can switch roles if workloads shift. Pause hiring where possible instead of layoffs. A lean team can often adapt faster, especially if the mission is clear.
When (and How) Should You Raise More Funding?
Fundraising is never fun, but it gets scarier as runway gets shorter. Start prepping for your next round when you still have at least nine months of runway left. Deals take time, negotiations can drag, and investor interest always moves slower than you expect.
Understand your options, too. There’s equity (selling company shares), convertible notes, venture debt, and sometimes even grants depending on your space.
Different stages call for different investors. Friends and family rounds usually come early. Angel investors might follow. VCs and institutional money get involved as the business and numbers start making sense.
The better prepared you are—with financial statements, a crisp pitch, and a clear answer on your use of funds—the smoother investor meetings go. Keep your numbers handy, but also come ready to talk honestly about the path ahead. Investors want to know you understand your own risks.
Building a Real Financial Plan
A good financial model does a couple of things. It spells out what you’re spending, where growth could come from, and when the bank account might take a hit. Start with the basics—a 12-month forecast of revenue, costs, and cash in the bank each month.
Update your model as soon as you get real data. A forecast you made in January will look out-of-date fast if customers double or a big hire joins. Make it a habit to check in monthly, not just before investor meetings.
Financial health isn’t just about how much you have—it’s also about spotting risks. If you know your burn rate and runway, you’re less likely to wake up to a scary surprise.
If you ever want to dig deeper or need sample spreadsheets, there are some simple finance tools that can help. A lot of founders start with Google Sheets or try more specialized software, depending on where they are. Sites like Condealtea Inmobiliaria sometimes share helpful business finance resources, too, even if they’re real estate focused.
Don’t Forget to Check In Regularly
Even if things feel good now, conditions change fast in the startup world. Run a “financial health check” every month. Compare your plan to actual results. If you see expenses rising faster than planned, or revenue isn’t there yet, act fast.
Think of this as steering, not just checking. You can only make smart moves with fresh info.
A Few Tools, Books, and Classes to Check Out
If you want to get handier at startup finance, you’re not alone. Plenty of other founders recommend:
– “Venture Deals” by Brad Feld and Jason Mendelson, for understanding funding.
– “The Startup Owner’s Manual” by Steve Blank, for practical tips.
– Tools like Baremetrics or LivePlan, for tracking runway and burn automatically.
– Free online courses—Y Combinator’s Startup School covers basics, or look at Coursera for entrepreneurship finance classes.
Even a little more financial confidence goes a long way the next time you’re sitting across from an investor.
Wrapping Up: Keep It Real, Keep It Regular
Startup finance isn’t rocket science, but it does require attention. Knowing your runway and burn rate gives you the facts you need to make good decisions.
Most successful founders don’t have finance degrees. They’re just willing to look at the numbers every month—and react early when things change. That’s more than enough to keep the plane rolling, with plenty of runway left ahead.