Quick Answer
Cash runway is the number of months a company can continue operating at its current burn rate before running out of cash. Calculate it by dividing total cash and liquid assets by the average monthly net cash burn (cash out minus cash in). For pre-profit businesses, maintaining at least 12-18 months of runway is considered prudent. Below six months triggers urgent action — either reduce burn or secure additional funding.
Simple calculation: Total cash balance / average monthly net burn = months of runway.
Example: £2.4m cash / £200k monthly net burn = 12 months of runway.
Refined calculation: Use a forward-looking cash forecast rather than a simple average. If you plan to hire aggressively in Q2, your burn rate will increase, shortening runway. The forward-looking calculation accounts for planned changes.
Gross burn is total monthly cash outflows, ignoring revenue. This represents how much you spend each month.
Net burn is total cash outflows minus total cash inflows. This represents how much cash you consume each month.
For pre-revenue companies, gross and net burn are similar. For companies with revenue, net burn is the more meaningful figure for runway calculations.
Running out of cash is the primary way companies fail. Even profitable companies can fail if they run out of cash due to working capital timing (e.g., paying suppliers before collecting from customers). Runway gives you visibility into how much time you have to reach profitability, secure funding, or adjust your cost base.
Above 18 months: Comfortable position. Focus on growth and execution. Consider whether excess cash should be deployed more aggressively.
12-18 months: Healthy but monitoring. Begin planning the next funding round or path to profitability. Maintain discipline on discretionary spending.
6-12 months: Caution zone. Actively reduce non-essential spend. Accelerate revenue efforts. Begin fundraising or bridge financing conversations.
Below 6 months: Urgent action required. Implement immediate cost reductions (hiring freeze, discretionary spend cuts, renegotiate contracts). If fundraising, accept that terms will be less favourable under time pressure.
Report cash runway to the board monthly, alongside: - Current cash balance - Monthly burn rate (3-month rolling average and current month) - Forward-looking runway based on the latest cash forecast - Key upcoming cash events (VAT payment, HMRC deadlines, large contracts)
FP&A platforms like Grove FP automate cash runway calculations by connecting to bank feeds and projecting future cash flows based on the P&L forecast and working capital assumptions. This provides real-time runway visibility rather than month-end snapshots.
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FAQ
Only include cash you have received or have a signed, unconditional commitment for. Verbal commitments, term sheets, or "likely" investments should not be included in the base runway calculation. You can show them as an upside scenario, but base runway should reflect confirmed cash only.
Update monthly using actual cash balances and revised burn forecasts. For businesses with less than 12 months of runway, update weekly. Some fast-growing startups track cash position daily using bank feed integrations.
Burn multiple = net burn / net new ARR. Below 1x is excellent (you are generating more ARR than you are burning). 1-2x is efficient. Above 2x suggests you are burning too much relative to growth. This metric, coined by David Sacks, is particularly useful for SaaS businesses evaluating growth efficiency.
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