Burn rate, defined
- Gross burn is everything you spend in a month.
- Net burn is gross burn minus the cash that comes in: what the bank balance actually falls by.
- Runway is cash ÷ net burn: how many months until the money runs out if nothing changes.
With $1.2 million in the bank, $120,000 of monthly expenses and $40,000 of monthly revenue, net burn is $80,000 and runway is 15 months. Use cash actually received, not bookings or annual contracts signed but not yet paid, or the runway will look longer than it is.
Why the growth line matters
Flat runway assumes nothing changes, but nothing stays flat. Revenue growth shortens the burn every month; hiring lengthens it. The projection compounds both and shows the month your revenue covers your costs, if that happens within five years. If it lands before the cash runs out, the company can reach profitability on the money it already has. If it doesn’t, the gap between the zero-cash month and the break-even month is the case you are making to investors.
How much runway is enough
A raise usually takes three to six months from first meeting to money in the bank, so founders generally start fundraising with at least that much runway left — more if the market is slow. Treat the zero-cash date above as the deadline to have the next round closed, not the day to start it. If you’re weighing whether to raise at all, read bootstrapping vs. venture capital; your own salary is often the biggest line you control, covered in how much founders should pay themselves.