Runway is your cash balance divided by your monthly burn rate. If you have $600,000 in the bank and you’re spending $50,000 per month, you have 12 months of runway. That’s the basic math.

The tricky part is calculating burn rate correctly. Gross burn is your total monthly cash outflows. Salaries, rent, software, marketing, everything you spend. Net burn is gross burn minus any revenue coming in. A company spending $80,000 per month but bringing in $30,000 has a gross burn of $80,000 and a net burn of $50,000. Investors typically care about net burn because it reflects how fast you’re actually depleting cash.

Use your average monthly burn over the last 3-6 months rather than a single month. One-time expenses like equipment purchases or annual software renewals can distort a single month’s number. If you know you have large upcoming expenses that aren’t reflected in recent months, adjust your projection accordingly.

Runway length tells you what mode you should be in. Eighteen months or more gives you room to experiment and grow without pressure. Twelve to eighteen months is healthy but you should be thinking about your next funding round. Six to twelve months means it’s time to actively fundraise if you plan to raise. Under six months is the danger zone where you have limited options and a weak negotiating position.

Most startups should begin fundraising when they have 6-9 months of runway remaining. Raising takes longer than you expect. What feels like a 3-month process often becomes 6 months when you factor in intro meetings, partner meetings, due diligence, and legal work. Starting too late means you’re negotiating from desperation, which investors can smell.

Common mistakes in runway calculations include forgetting about payroll taxes and benefits on top of base salaries, ignoring quarterly or annual payments like insurance, and assuming revenue will grow while costs stay flat. Build your projection on what you know, not what you hope will happen.

If your books aren’t accurate, your burn rate isn’t accurate, which means your runway isn’t accurate. Startups that track finances loosely end up surprised when cash runs out faster than expected. Working with a full charge bookkeeping service ensures you know exactly where you stand every month.

Runway isn’t just a number for investors. It determines how much risk you can take, how aggressively you can hire, and whether you have time to pivot if something isn’t working. Understanding your runway leads to better decisions. Not understanding it means finding out too late that you should have started raising months ago.