The call came at 9:47 AM on a Tuesday.
"We're out of cash."
Marcus, the founder I'd been advising for two years, sounded hollow. His startup had raised $3 million just 18 months earlier. Beautiful product. Real customers. Everything going for them.
But they'd never tracked their burn rate. They'd never calculated their runway. And now, with no cash and no 备选 (backup options), they were dead.
I asked the obvious question: "How did this happen?"
"We thought we had 12 months of runway. We had 6."
That conversation changed how I approach startup finance. Burn rate and runway aren't just metrics—they're the difference between survival and failure.
The Night That Changed Everything
Let me tell you about a different founder. Sarah called me in a panic at 11 PM on a Sunday.
"We're three months from running out of money. The board wants to know our runway. I have no idea how to calculate it."
She'd built a successful B2B SaaS company. $2 million ARR. Real revenue. But she had no idea how long she could survive if things went wrong.
We spent three hours walking through her financials. What I found was startling: she had enough runway if she made one change. Just one.
We cut a $15,000/month expense that wasn't driving revenue. Her runway extended from 3 months to 8 months. That gave her time to raise her next round.
Sarah's company is now worth $50 million. She still tracks her burn rate weekly.
The lesson: Understanding your numbers isn't optional. It's survival.
What Are Burn Rate and Runway?
These two metrics are your startup's vital signs. Ignore them at your peril.
Burn Rate
Burn rate is how much cash your company spends each month. It's your net cash outflow—total money going out minus any money coming in.
The formula:
Burn Rate = Total Monthly Expenses - Monthly Revenue
If you spend $80,000/month and make $20,000/month, your burn rate is $60,000/month.
Runway
Runway is how many months until you run out of money. It's the most important number in your business.
The formula:
Runway = Current Cash ÷ Burn Rate
If you have $300,000 in the bank and burn $60,000/month, your runway is 5 months.
The Three Types of Burn Rate
Most founders oversimplify burn rate. But understanding the different types reveals where your money is actually going.
Gross Burn
Total monthly expenses, ignoring revenue. This shows your baseline spending.
Net Burn
Gross burn minus revenue. This shows your true cash consumption. If you're generating revenue, your net burn is lower than your gross burn.
Adjusted Burn
Net burn adjusted for one-time expenses, seasonal variations, and expected changes. This is the number you should plan around.
Example: A SaaS Startup's Monthly Burn
Category | Amount | Notes |
|---|---|---|
| Gross Expenses | $120,000 | Total monthly spend |
Salaries & Wages | $80,000 | 15 employees |
Software & Tools | $8,000 | Engineering, design, productivity |
Marketing | $15,000 | Paid ads, content, events |
Office & Infrastructure | $7,000 | Rent, utilities, cloud hosting |
Professional Services | $5,000 | Legal, accounting |
Insurance & Misc | $5,000 | Various overhead |
| Monthly Revenue | $45,000 | MRR from subscriptions |
| Net Burn | $75,000 | $120,000 - $45,000 |
With $300,000 in the bank, this startup's runway is:
$300,000 ÷ $75,000 = 4 months
The Math of Churn (Why Runway Compounds)
Churn is the silent killer. It compounds in ways that aren't immediately obvious.
Consider a company with 1,000 customers and 5% monthly churn:
Time Period | Customers Remaining | Cumulative Churn |
|---|---|---|
Start | 1,000 | 0 |
After 6 months | 735 | 26% |
After 12 months | 544 | 46% |
After 18 months | 404 | 60% |
After 24 months | 301 | 70% |
To maintain 1,000 customers, this company needs to acquire 50 new customers every month just to stand still. That acquisition cost adds up quickly.
Calculate Your Burn Rate Accurately
Burn rate calculation seems simple. But there are traps that catch many founders.
Include Everything
Your burn rate should include ALL cash outflows:
- Payroll and contractor payments
- Benefits and payroll taxes
- Software and tool subscriptions
- Marketing and advertising costs
- Office and facilities costs
- Professional services (legal, accounting)
- Cost of goods sold (if applicable)
- One-time expenses (amortized monthly)
Exclude Non-Cash Expenses
Accounting depreciation, stock-based compensation, and other non-cash expenses shouldn't be in your burn rate. Burn rate is about cash flow, not accounting.
Account for Irregular Expenses
Some expenses aren't monthly:
Expense | Monthly Cost | Amortized Monthly |
|---|---|---|
Annual software subscription ($12,000/year) | $0 or $12,000 | $1,000 |
Biennial insurance ($6,000/2 years) | $0 or $6,000 | $250 |
Quarterly legal bills ($3,000/quarter) | $0 or $3,000 | $1,000 |
Divide annual costs by 12 and include them in your monthly burn rate. Set aside cash for periodic expenses.
Don't Forget Revenue Timing
If you have revenue, be realistic about when it comes in:
- Payment delays (invoices aren't paid immediately)
- Refunds and chargebacks (some revenue will be lost)
- Revenue dips (revenue rarely grows in a straight line)
The 6-Month Warning
When your runway drops below 6 months, you should be in full fundraising mode.
Why 6 months?
- Most fundraising processes take 3-6 months
- Investors won't meet with companies that have less than 6 months of runway
- You need time to negotiate, not desperate
The math:
- If you have 6 months of runway
- And fundraising takes 3-6 months
- You might be down to 0-3 months when you close
- That's cutting it incredibly close
A Founder's Nightmare (And How to Avoid It)
I worked with a fintech startup that had everything going for them: $5 million raised, $1 million ARR, and a growing customer base.
But they had a hidden problem: their burn rate was $400,000/month. With $2 million in the bank, they had only 5 months of runway.
They thought they were fine. They were planning to raise their Series A in 6 months.
Then the market changed. Investors got cautious. Their fundraise took 9 months instead of 6.
They ran out of money at month 8.
The lesson: Always have a 6-month buffer. If you think you need 6 months of runway, you actually need 12.
Manage Your Runway Effectively
Knowing your runway is step one. Managing it actively is step two.
Track Runway Weekly
Run your numbers weekly at minimum. Monthly is too infrequent. Things can change quickly in early-stage companies.
Set Milestones Against Your Runway
If you have 18 months of runway:
- What do you need to accomplish?
- What milestones do you need to hit?
- What's your next funding round timeline?
If you have 6 months of runway:
- Fundraise NOW
- Cut non-essential spending
- Generate revenue
If you have 3 months of runway:
- Emergency action required
- Fundraise aggressively
- Consider bridge financing
- Prepare for the worst
Extend Runway Strategically
If your runway is shorter than you'd like, you have options:
Strategy | Speed | Impact | Risk |
|---|---|---|---|
Cut costs | Fast | High | Low |
Raise money | Slow | High | Medium |
Generate revenue | Slow | Medium | Low |
Borrow money | Fast | Medium | High |
Build a Financial Model
A financial model is essential for planning and for communicating with investors.
What to include:
- Revenue projections (conservative, expected, optimistic)
- Expense projections
- Headcount plan
- Fundraising milestones
- Scenario analysis
The most important part: Update your model regularly. The value is in the thinking, not in the numbers themselves.
Common Burn Rate Mistakes
These are the mistakes I've seen most often:
Mistake #1: Underestimating True Costs
Founders often underestimate what they'll spend. They forget payroll taxes, benefits, software subscriptions, and the hundred small expenses that add up.
The fix: Be paranoid about your cost projections. Add 20% buffer.
Mistake #2: Overestimating Revenue
Revenue projections are almost always too optimistic. New products acquire customers slower than expected.
The fix: Build in conservative revenue assumptions. Test your assumptions with data.
Mistake #3: Ignoring Cash Flow Timing
Revenue recognition and cash flow are different. You might "make" $100,000 in a month but only collect $70,000.
The fix: Track when cash actually moves, not when revenue is recognized.
Mistake #4: Letting Burn Creep Up
Small cost increases compound over time. A $1,000/month increase in spend is $12,000/year.
The fix: Review expenses monthly. Challenge every line item.
Mistake #5: Not Planning for the Worst
Many founders build models that assume everything goes right.
The fix: Plan for adverse scenarios. What if sales are slower? What if a key hire leaves?
Runway in Different Stages
Your runway strategy should evolve as your company grows.
Pre-Revenue Stage
At this stage, you're entirely dependent on capital. Minimize burn while building a product that can generate revenue.
Target: 18+ months of runway
Early Revenue Stage
Revenue helps but probably doesn't cover costs yet. Your goal is to reach profitability or raise enough to get there.
Target: 12-18 months of runway
Growth Stage
With more revenue, you have more flexibility. You can choose to invest in growth or move toward profitability.
Target: 12+ months of runway
Profitability Stage
If you reach profitability, runway becomes less relevant. But understanding burn and unit economics still matters for growth decisions.
Communicate with Your Board and Investors
If you have board members or investors, keep them informed about your financial position.
Be Proactive
Don't wait for a crisis. Regular updates on burn and runway show that you're managing the business responsibly.
Be Honest
If things are trending wrong, say so. Investors would rather hear about problems early when they can help.
Ask for Help
Your investors have seen many companies navigate these challenges. If you're struggling, ask for advice.
Build Financial Resilience
The goal isn't just to survive—it's to have enough runway to make strategic decisions rather than desperate ones.
Maintain a Cash Buffer
Beyond your planned runway, try to maintain a cash buffer of 1-2 months. This gives you flexibility.
Diversify Funding Sources
Don't depend on a single source of capital. Have relationships with multiple investors.
Stress Test Your Business
Regularly ask: What would happen if our primary customer churned? What if our biggest expense increased?
Plan Multiple Paths
Have contingency plans. If fundraising takes longer than expected, what's your backup plan?
The Final Word
Running out of money is the most common reason startups fail. It's entirely preventable.
Track your burn rate. Know your runway. Plan for the worst. And always, always have a buffer.
The founders who survive are the ones who understand their numbers.
Related Reading
- SaaS Metrics Every Founder Must Track - Understanding unit economics
- Customer Acquisition Cost Complete Guide - Managing the cost of growth
- Startup Fundraising Complete Guide - Planning your next fundraise
Need help with startup financial planning?
At Startupbricks, we help founders build financial models and manage runway effectively. We've helped dozens of startups avoid running out of cash and plan for sustainable growth.
Let's talk about your financial situation.