Definition (canonical)
Burn rate is how much cash a company loses per month; runway is how many months of life remain at that pace: `runway = cash ÷ net monthly burn`. For any business spending ahead of revenue — startups above all — these two numbers matter more than profit, because they date the company's expiry.
Gross vs net burn
Gross burn = total monthly cash outflows (salaries, tools, rent, marketing). Net burn = outflows minus inflows — what the bank balance actually loses. A team spending 100k with 60k of collections burns 40k net. Watch both: net burn dates your runway, gross burn shows the true size of the machine you must eventually feed from revenue alone. And compute them from actual cash flow, not the P&L — booked revenue that hasn't been collected extends nothing.
How much runway is safe
Working convention from venture practice: 18–24 months after a funding round, because raising the next round takes 6–9 months and you never want to negotiate on fumes — desperation is visible and priced. Below 9–12 months, extending runway becomes the priority; below 6, it is the only agenda item. Bootstrapped firms translate the same idea into a cash buffer covering fixed costs for N months. The honest companion metric is default alive/dead: at current growth and burn, does the company reach breakeven before the cash ends? If yes, fundraising is a choice; if no, a deadline.
Extending runway without killing the engine
Order of operations: cut spending that doesn't produce growth (vanity marketing, unused tools, premature hires) before touching what does; improve collections and terms — cash arriving 30 days sooner is runway too; raise prices (the most underused lever in early companies); convert fixed costs to variable. Cutting muscle instead of fat lengthens the clock while destroying the reason anyone would fund the next round — runway math and growth quality must be read together.
FAQ
Is zero burn the goal? For venture-scale companies, not necessarily — deliberate burn buying durable growth is the model. The sin is burn without learning or growth.
How often should burn be reviewed? Monthly at board level, weekly internally when runway drops below a year.
Does a credit line count as runway? Committed, drawable facilities add contingent runway — but covenant-laden lines can vanish exactly when needed. Count cash first.
Related: Cash Flow · Startup · MRR & ARR · Venture Capital Reviewed: 2026-07-15 · Sources: venture finance practice