Your startup runway is cash in the bank divided by net monthly burn, expressed in months. If you hold $180,000 and spend $30,000 more than you bring in each month, you have six months. The number is simple arithmetic; what founders get wrong is which cash they count, which costs they include, and how late they leave it before acting on the answer.
The decision the number drives is also simpler than it looks. You start raising when a defined milestone is in reach and you still have enough months left to run a process without being forced to accept whatever is in front of you.
Calculating Your Startup Runway Properly
Step 1: Count the cash you actually control
Cash in your bank accounts. Not your pipeline. Not an invoice sent last week. Not a grant that has been approved but not received. Not an undrawn credit facility.
If a receipt is genuinely contracted and dated, you can model it in the month it lands — but keep it out of the opening cash figure. The opening number should be what would be there if nothing else happened.
Step 2: Work out net burn, not gross burn
Gross burn is total monthly spend. Net burn is spend minus cash coming in. Runway uses net burn.
Founders who quote gross burn when they have real revenue understate their runway, sometimes badly. Founders who forget employer costs on payroll overstate it, which is the more dangerous error.
Include in your monthly outflow:
- Salaries, plus employer taxes, benefits and insurance on top
- Contractors and agencies
- Software, tools and hosting
- Rent, utilities, insurance
- Accounting and legal fees
- Payment processing fees
- Marketing spend
- Loan or lease repayments
A common mistake is budgeting salaries at the base figure. The employer-cost uplift is real money leaving the account; ask your accountant what it is for your jurisdiction and build it in.
Step 3: Smooth the lumps
A single month is a bad sample. Annual insurance, a tax payment, a quarter’s software renewal or one large customer prepayment will distort it.
Use a three-month average for net burn, and separately list known one-off payments in the months they fall. Quarterly tax or VAT payments belong in the month they are due, not spread.
Step 4: Do the division, then find the cash-out date
Cash divided by average net burn gives months. Add those months to today to get a date. Write that date down.
The date is more useful than the number of months, because it can be put next to other dates — a renewal, a hire, a product launch, the start of a fundraising process.
Step 5: Model it monthly rather than relying on one average
The division gives you an approximation. Your financial model gives you the real line, because burn is not flat — hires land, marketing steps up, a prepayment arrives.
Build a cash row by month: opening cash, receipts, payments, closing cash. Read the month where closing cash crosses zero. Then read the month where it crosses three months’ worth of burn, because that is the line you actually care about.
A Worked Example
| Figure | |
|---|---|
| Cash in bank | $240,000 |
| Average monthly outflow (3-month) | $52,000 |
| Average monthly receipts (3-month) | $14,000 |
| Net burn | $38,000 |
| Simple runway | 6.3 months |
| Known one-off: tax payment in month 2 | $18,000 |
| Known change: two hires from month 3, +$11,000/month | |
| Modeled cash-out | Month 5 |
The simple division says six months. The model says five, because of one tax payment and a hiring decision already made. That one-month difference is the difference between a calm process and a rushed one.
How Your Startup Runway Tells You When to Raise
Two conditions have to be true at the same time. Not one.
Condition one: you have something new to show. A round is sold on progress since the last conversation. Revenue growing on a trend, retention holding, a product shipped and in use, a channel that repeats. Raising before the milestone means raising on the same story as last time.
Condition two: you have enough months left to run a process and survive a no. Fundraising takes real calendar time — building the list, first meetings, second meetings, diligence, documents, then the money actually arriving, which is itself weeks after a yes. It also consumes founder attention, so burn rarely falls during a process and revenue growth often slows.
Plan for the process to take considerably longer than you expect, and for the possibility that it does not close at all. That means starting while you still have enough runway to go back to operating, cut costs, and try again later.
The common failure is waiting for the milestone until condition two has quietly expired. At that point you are not negotiating, you are accepting.
Set the trigger in advance
Decide the trigger now, while nothing is urgent, and write it on the same page as your plan:
- Start preparing when runway hits a level that still leaves room for a full process plus a buffer
- Start conversations at the point where the milestone is either hit or clearly in reach
- Trigger the cost-reduction plan at a defined lower level, regardless of how the process is going
That third trigger is the one founders skip, and it is the one that preserves optionality. Write the reduction plan before you need it — which costs come out, in what order, and what the resulting burn and runway become. Deciding that calmly in advance is a different exercise from deciding it in week ten of a slow process.
What to Have Ready Before Conversations Start
Have these finished before the first meeting, not during the process:
- The deck. Twelve slides, point headlines, an ask tied to milestones — the pitch deck templates page covers the sequence.
- The financial model. Monthly for 24 months, with an assumptions tab, and the scenario switch working.
- A metrics summary. One page, defined consistently, matching what your updates have said.
- The cap table. Current and reconciled, not reconstructed from memory.
- Corporate documents. Incorporation, shareholder records, prior investment documents, IP assignments including from contractors.
- Contracts. Customer agreements, key supplier terms, employment and contractor agreements.
- A list of your own open risks. The things that will come up anyway. Naming them first is a stronger position than being found out.
Keep them in one organized folder. A founder who takes three weeks to produce basic documents signals how the company is run, and diligence delay is the quiet killer of processes that were otherwise going fine.
On the legal side of this list: incorporation, equity, instruments, vesting and anything resembling an offer of securities need a lawyer in your jurisdiction, and the tax treatment needs an accountant. Those rules differ by country and state. Templates help you understand the structure and arrive at the conversation prepared — they do not replace the review, and nothing here is legal or financial advice.
Review It on the Same Day Every Month
Runway is not a thing you calculate once. Put it on the same monthly slot as your investor update: recalculate cash, recalculate three-month net burn, update the cash-out date, and check it against your triggers.
Most of the time nothing changes and it takes ten minutes. The month it does change, you will find out with time left to do something about it, which is the whole purpose of tracking it.
To build the cash and burn rows properly, start on the financial model templates page; the supporting documents for a process live in the template library.