Runway is the length of time, usually in months, that a company can continue operating before it runs out of cash, calculated by dividing cash on hand by its monthly net burn rate.
Why it matters
Runway turns a bank balance into a deadline. It tells founders how long they have to reach profitability, raise money or cut costs, and most advisers suggest planning decisions well before the number gets short, because fundraising and cost changes take time. Runway is a planning figure, not a guarantee.
Example
A company has 240,000 USD in the bank and a net burn of 30,000 USD a month, so runway is 8 months. If it cuts net burn to 20,000 USD, runway extends to 12 months. If it grows revenue and burn falls further, runway lengthens again.
Common mistakes
- Using gross burn instead of net burn.
- Forgetting upcoming lump-sum costs such as annual bills or taxes.
- Assuming revenue growth will arrive on schedule.
Related
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