Burn Rate & Runway Calculator

Understanding the burn rate and runway calculator — concept and principle

Burn rate is how fast a company spends its cash, and runway is how many months that cash will last. Startup founders, CFOs and investors use them to decide when to raise money, how fast to hire and whether the business can reach profitability before the bank account reaches zero.

How it is calculated

• Gross burn = monthly expenses.
• Net burn = monthly expenses − monthly revenue.
• Runway: the calculator simulates month by month. Each month, cash falls by expenses − revenue, then revenue grows by the monthly growth rate. When the cash left is less than a full month's net burn, the last month counts as a fraction (cash ÷ that month's net burn). If revenue reaches expenses before the cash is gone, it reports that cash never runs out; if cash still lasts after 240 months (20 years), it says more than 240 months.
• Start fundraising by month = runway − months needed to raise money.

Expenses and revenue are monthly amounts; growth is a monthly percentage. The calculator works with any currency.

The principle

The classic runway is cash ÷ net burn, which assumes nothing changes. When revenue grows, net burn shrinks every month, so a simple division understates runway. If revenue eventually exceeds expenses, the company becomes "default alive": it can survive on its existing cash. Simulating month by month captures that effect, though it assumes expenses stay flat and growth stays constant.

Worked example

1. Inputs: cash $1,200,000, expenses $150,000, revenue $60,000, growth 2% per month, fundraising lead time 6 months.
2. Gross burn = $150,000.00; net burn = $150,000 − $60,000 = $90,000.00.
3. Without growth, runway would be $1,200,000 ÷ $90,000 ≈ 13.3 months.
4. With 2% growth, net burn shrinks from $90,000 in month 1 to $70,831 in month 15 (revenue about $79,169). After 14 full months about $58,436 is left.
5. That covers 58,436 ÷ 70,831 = 0.83 of month 15, so runway = 14.8 months.
6. Start fundraising by month = 14.83 − 6 = 8.83.

How to read the result

A finite runway tells you how many months you have; the fundraising month tells you when to start, because raising often takes several months. Many founders keep a buffer and start well before the deadline. Here growth adds about 1.5 months to the static 13.3; at 5% growth, revenue would overtake expenses in month 20 and cash would never run out. Run the calculator again with lower growth or higher costs to stress-test the plan.

Common mistakes

• Using gross burn instead of net burn for runway, or the reverse.
• Assuming high monthly growth will continue for years.
• Forgetting one-off costs such as annual licences or hiring plans.

Frequently asked questions

How much runway should a startup have?

There is no fixed rule, but because fundraising can take many months, founders generally try to start raising while plenty of runway remains.

Why is the simulated runway longer than cash ÷ net burn?

Growing revenue reduces net burn each month, so the same cash lasts longer than the static formula suggests.

Sources: Paul Graham, "Default Alive or Default Dead?" (paulgraham.com, 2015)