Burn rate and runway explained

Burn rate and runway are the two numbers that decide how long your business survives before it either turns a profit or needs more money. Every founder should be able to recite their runway off the top of their head — yet plenty discover the problem only when the bank balance gets uncomfortable. Here's how to calculate both and what the numbers should be telling you.

Burn rate: how fast you spend

Burn rate is how much cash your business uses up each month. There are two versions, and the difference matters:

Gross burn = your total monthly cash outgoings — salaries, rent, software, everything. It's what it costs to keep the lights on.

Net burn = cash out minus cash in. If you spend £30,000 a month but bring in £10,000 of revenue, your net burn is £20,000. This is the number that actually drains your bank account, and it's the one runway is built on.

Runway: how long you've got

Runway is simply how many months of net burn your cash reserves can cover:

Runway (months) = cash in the bank ÷ net monthly burn

£120,000 in the bank with a £20,000 net burn gives you 6 months of runway — six months before the money runs out at the current rate. It's the single most important survival metric a young business has.

How much runway is "safe"?

The common rule of thumb for funded startups is to keep at least 6 months of runway at all times, and to start raising your next round when you have around 6–12 months left — because fundraising itself takes months, and you never want to negotiate from a position of desperation. For a bootstrapped small business, the equivalent is a cash buffer that covers several months of net burn so a slow quarter doesn't become an existential threat.

Default alive vs default dead

A useful lens, borrowed from Paul Graham: are you default alive or default dead? If your current growth and burn mean you'd reach profitability before the money runs out, you're default alive. If not, you're default dead — and you either need to grow faster, cut burn, or raise more. Knowing which one you are, today, changes every decision you make.

Extending your runway

Cut net burn. Every pound of cost removed, or revenue added, directly lengthens runway. Both halves of the net-burn equation count.

Watch the trend, not just the snapshot. Runway assumes today's burn stays flat. If your spend is creeping up each month, your real runway is shorter than the simple calculation suggests — recalculate often.

Model the downside. Re-run your runway assuming revenue dips or a big cost lands. The comfortable 9 months can become a tense 5 faster than you'd think.

Raise before you need to. The best time to raise money is when you still have plenty of runway and leverage — not when you're nearly out.