How to Calculate Startup Runway: A Worked Example
Take cash you can actually spend, excluding restricted balances and known lump payments, and divide it by average monthly net burn: gross spending minus cash collected. Then rebuild it forward month by month with committed hires and expected revenue, run downside and cut scenarios, and keep committed but unwired investment out until it lands.
Step 1: Start from cash you can actually spend
Every number below belongs to one illustrative company, so you can follow the arithmetic end to end.
The bank shows 2,400,000. That is not the starting figure.
- Subtract restricted cash: 150,000 held as collateral for an office lease letter of credit. It is in the account and cannot pay salaries.
- Subtract known lumps due soon: 90,000 in annual software renewals and a tax payment due this quarter. They will leave regardless.
- Spendable cash: 2,160,000.
Committed is not cash. The company also has a signed 500,000 SAFE from an angel who has not wired yet. Leave it out of the base case. Signed money sometimes arrives late, and occasionally not at all. Model it as a separate scenario with an expected month, and move it into cash only when it lands.
Step 2: Measure gross and net burn properly
Gross burn is everything that leaves the account in a month: payroll and payroll taxes, benefits, contractors, cloud and model inference, software, rent, marketing. Average the last three months to smooth out one-off payments. Here: 210,000.
Net burn is gross burn minus cash collected from customers. Use collected, not booked. This company bills 55,000 a month, but customers on 30 and 60 day terms mean only 40,000 actually arrived on average. Net burn: 210,000 minus 40,000 is 170,000.
Simple runway is spendable cash divided by net burn: 2,160,000 divided by 170,000 is 12.7 months.
That figure is the one most founders quote. It assumes nothing changes, which is never true.
Step 3: Rebuild it forward, month by month
Runway that matters is calculated on the plan, not on last quarter. Put each month in its own row and carry the cash balance forward. The plan for this company:
- Two engineers start in month 2 at 15,000 a month each, fully loaded. Gross burn rises by 30,000.
- Cloud and inference costs grow by 3,000 a month as usage grows.
- Collected revenue grows 6 percent a month, its recent rate.
Run those forward and cash runs out during month 11. Plan runway: about 10.9 months, nearly two months shorter than the simple figure, because the hires land before the revenue they are meant to produce.
Scenario runway
One forward case is a forecast. Three are a decision tool. Same company, same starting cash:
- Plan, as above: about 10.9 months.
- Downside, revenue grows 2 percent a month, hires and costs as committed: about 10.4 months.
- Cut, no new hires, 25,000 a month of discretionary spend removed, revenue at 2 percent: about 13.6 months.
- Plan with the SAFE, the 500,000 wires in month 2: about 13.5 months.
The spread between those cases is the real information. Here, the cut case and the late SAFE are worth roughly the same three months, which tells the founders that hiring is the decision that most needs to be tied to the money landing.
Step 4: Test default alive
Paul Graham's October 2015 essay "Default Alive or Default Dead?" asks a sharper question than runway: on current expenses, with revenue growing at its recent rate, does the company reach profitability before the cash runs out, assuming no new money?
Apply it here. Hold gross burn at 210,000, grow collected revenue at 6 percent a month, and add no investment. Cash runs out in about 14.5 months, with revenue still well short of costs. The company is default dead.
The useful extension is to solve for the growth rate that would change the answer. In this example, collected revenue would need to grow at roughly 9 percent a month, sustained, to reach profitability around month 21 before cash runs out. That converts a vague worry into a specific target the team can test against reality each month.
Step 5: Turn runway into dates
A runway number is only useful when it produces dates.
Cash-zero date. The month the plan case runs out: month 11.
Raise-start date. Cash-zero minus the months a raise takes, minus a buffer. If a raise takes about six months from preparation to wire and the board wants three months in hand at close, this company needs to start raising by month 2. In other words, now.
Cut-trigger date. The point at which, if the raise is not progressing, the cut plan starts. Decide it in advance, while the decision is calm.
Recalculate monthly, after closing the books. Burn drifts, collections slip, and the gap between the forward model and actual cash is itself an early warning.
What a runway calculator should take and output
A spreadsheet or calculator that only divides cash by burn reproduces the simple figure. A useful one needs these inputs and outputs.
Inputs
- Bank balance, with restricted cash entered separately.
- Known lumps by month: annual renewals, taxes, deposits, one-off purchases.
- Committed but unwired funding, with an expected month and a toggle to include it.
- Gross burn by category, or a three-month average if categories are not available.
- Collected revenue, separate from booked revenue, with a monthly growth rate and churn.
- Planned hires with start month and fully loaded monthly cost.
- Usage-linked costs, such as cloud and inference, as a rate tied to revenue or usage.
- Months a raise takes, and the minimum buffer at close.
Outputs
- Gross burn, net burn, and simple runway.
- Month-by-month cash balance for each scenario.
- Runway and cash-zero date for plan, downside, and cut cases.
- Raise-start date and cut-trigger date.
- A default alive or default dead result, plus the monthly revenue growth rate required to become default alive.
- The lowest cash balance in the plan and the month it occurs.
Frequently asked questions
- How do you calculate startup runway?
- Start with spendable cash: the bank balance minus restricted cash and known obligations. Divide by monthly net burn, which is gross spending minus cash actually collected, averaged over three months. Then rebuild it forward month by month with planned hires, cost growth, and expected revenue, and run a downside and a cut scenario. The forward figure is the one to act on.
- Should committed investment count toward runway?
- Not in the base case. Signed but unwired money can arrive late or fail to arrive. Model it as a separate scenario with an expected wire date, and move it into cash only when it lands. Tie any spending that depends on it, such as new hires, to the wire rather than to the signature, so a delay does not shorten runway.
- How often should runway be recalculated?
- Monthly, after closing the books, and immediately after any material change: a large customer lost or won, a hire made, a price change, or a funding event. Compare actual cash against the forward model each month. A growing gap between the two is an early sign that burn or collections assumptions are wrong and that dates need to move.
- How do you know if a startup is default alive?
- Hold expenses at their current level, grow revenue at its recent monthly rate, and assume no new investment. If revenue reaches expenses before cash runs out, the company is default alive, a test from Paul Graham's 2015 essay. If not, solve for the growth rate that would make it alive, and track actual growth against that target every month.