- Last month's burn is a poor predictor because commitments are already made.
- Define gross and net burn explicitly and never mix them.
- Include agreed hiring, annual costs and known step changes.
- Model a downside; runway that assumes plan revenue is not runway.
- Recalculate monthly and record what changed.
What is wrong with the standard calculation
Cash divided by last month's net burn assumes next month resembles last month. For an early-stage company that assumption is usually false: offers have been accepted, contracts signed, and annual costs fall due in specific months.
It also embeds revenue at plan, which is optimistic more often than not. The result is a number that is comfortably wrong in the same direction every time.
Committed spend is the right starting point
Build forward from what the company has already committed to. That is knowable, and it is what will actually happen regardless of how the month goes.
- Current payroll, plus offers accepted but not started, plus employer costs.
- Signed contracts and their renewal dates.
- Annual and quarterly costs mapped to the month they fall.
- Card settlement on its fixed cycle.
- Tax payments on their statutory dates.
Define your terms once
| Term | Definition to fix in writing |
|---|---|
| Gross burn | Total cash out, before any revenue |
| Net burn | Cash out less cash in, over the same period |
| Committed burn | Net burn including commitments already made but not yet paid |
| Runway | Months until cash reaches your minimum operating balance, not zero |
Note the last row: runway to zero is not usable, because a company cannot operate at zero.
Two scenarios, always
Present a base case and a downside where revenue underperforms meaningfully — thirty per cent below plan is a common test. The gap between the two runway figures is the size of your exposure to the revenue assumption.
If the two numbers are far apart, your runway is a revenue forecast wearing a disguise, and it should be discussed as such.
Using the number
Runway is only useful if it triggers something. Agree in advance what happens at particular thresholds, so the decision is made calmly rather than under pressure.
Most operators start a raise with nine to twelve months remaining, because raises take longer than expected and short runway weakens negotiating position. That is context, not advice — your circumstances may differ.
Frequently asked questions
No. Runway is what you have without new money. Model funding separately as a scenario, or the number stops measuring the thing it exists to measure.
Net, but only if revenue is genuinely predictable. Where revenue is lumpy, present both and be explicit about which assumption drives the headline figure.
Monthly at minimum, and immediately after any material commitment such as a hiring round or a large contract.
Keep reading
Sources and further reading
Every factual statement on this page is checked against primary documentation. Terms change frequently, so confirm details with the provider before acting on them.
- FASB Accounting Standards Codification Reference point for accrual, expense recognition and close-process statements.
- FDIC — deposit insurance and pass-through coverage Reference for how deposit insurance applies, including through third-party arrangements.
- Consumer Financial Protection Bureau — credit card resources Background on card terminology, billing cycles and consumer-vs-commercial distinctions.