Burn rate and runway: formulas, examples and planning controls

What burn rate measures

Burn rate describes how quickly a company spends cash, commonly measured monthly. Gross burn is total operating cash outflow. Net burn is the reduction in cash after operating inflows. The distinction matters when revenue is meaningful.

Net burn = Monthly cash outflows - Monthly cash inflows

Runway in months = Available cash ÷ Net monthly burn

Worked example

A company starts with $600,000, receives $90,000 from customers and pays $150,000 during the month. Gross burn is $150,000, net burn is $60,000 and simple runway is ten months. The estimate assumes the same pattern continues.

Why one-month burn can mislead

Annual insurance, tax payments, hiring, customer renewals and capital purchases make cash movement uneven. Calculate a normalized trailing average, but retain a dated forecast for known future items. A company with ten months of average runway may face a cash trough much sooner.

Use scenarios and triggers

Create a base case using current expectations, a downside case with slower receipts or lower revenue, and a controlled upside case. Set management triggers—for example, slowing hiring when downside runway reaches a chosen threshold—before pressure makes decisions reactive.

Keep the measure consistent

Document whether financing, capital spending and restricted cash are included. Reconcile the opening cash figure and refresh the model when material assumptions change. Backtest forecast receipts and expenses against actual results.

Try NanoFora free burn rate and runway calculator, then explore AI financial forecasting for evidence-linked scenarios and backtesting.