How to calculate runway, and when to start worrying

To calculate runway, divide the cash you have in the bank by your net monthly burn: the money going out each month minus the money coming in. If you have ₹1,20,00,000 in the bank and you burn ₹10,00,000 a month net, your runway is 12 months. The real answer is usually shorter, because hires and one-off costs you already know about change the burn, so this guide shows how to plan for them.

Who this is for: founders and finance leads at startups that spend more than they earn today and need to know, honestly, how long the cash will last.

Gross burn vs net burn

Two numbers get called "burn". They mean different things.

Runway is calculated on net burn. Gross burn is still worth knowing: it tells you how fast the cash would go if revenue dried up.

Use cash numbers, not P&L numbers. Revenue you've invoiced but not collected doesn't pay salaries. An annual software bill paid upfront hits your cash this month, even if your P&L spreads it over twelve.

The startup runway formula, with a worked example

Runway (months) = Cash in bank ÷ Net monthly burn

Take a startup with:

• Cash in bank on 31 October: ₹1,20,00,000
• Average gross burn over the last three months: ₹18,00,000 a month
• Average cash collected over the last three months: ₹8,00,000 a month
• Net burn: ₹18,00,000 minus ₹8,00,000 = ₹10,00,000 a month

Runway: ₹1,20,00,000 ÷ ₹10,00,000 = 12 months.

Use an average of the last three months, not just last month. One month can be distorted by an annual bill, a delayed customer payment or a bonus.

Add the hires and one-off costs you already know about

The simple formula assumes next month looks like last month. It rarely does. Say the same startup has already approved:

• Three hires starting in month 3, costing ₹4,50,000 a month together, including PF and other employer costs
• A one-off ₹6,00,000 in month 2 for laptops and an office deposit

Now work it month by month.

The cash runs out partway through month 9. The honest runway is about 8.5 months, not 12. That gap of three and a half months is exactly the time you'd need to run a fundraise.

You can also add expected revenue growth, but be careful. Put growth in a second scenario. Plan the business on the version without it.

6, 12 and 18 months: what each one means

There's no single right number, but these are the conversations each level usually leads to.

The key point: you don't start worrying when the money is nearly gone. You start worrying when runway minus the time a raise takes leaves you no margin. If a round takes six months and you have eight, you have two months of slack, not eight.

Talking runway with your board

Investors will calculate your runway whether you tell them or not. It's better to show it yourself, every month, the same way.

• Show both numbers. Simple runway (cash ÷ current net burn) and planned runway (with approved hires and known costs).
• Show the trend. Runway going from 14 to 13 to 12 months is normal. Going from 14 to 10 in one month needs an explanation.
• Say what you'll do at each line. "If runway drops below 9 months and we haven't closed the round, we pause the two open roles." Boards trust founders who have decided in advance.
• Count only cash in the bank. A term sheet isn't money. Show committed funds as a separate scenario, clearly labelled.

Runway belongs on the first page of your monthly board pack, right next to cash.

Common mistakes

• Using one month's burn. One unusual month makes runway look much better or much worse than it is.
• Using P&L numbers instead of cash. Unpaid invoices don't pay salaries.
• Forgetting approved hires. A hire approved today changes runway from the day they join, and adds employer costs on top of salary.
• Counting promised money. Rounds slip. Plan on cash you have.
• Calculating it once. Runway is a monthly number, worked out right after the books close.

Questions people ask

What is the formula for startup runway?

Runway in months equals cash in the bank divided by net monthly burn. Net burn is total monthly spending minus monthly cash coming in. Use an average of the last three months rather than one month, and adjust for hires and one-off costs you already know are coming.

What is the difference between gross burn and net burn?

Gross burn is everything you spend in a month: salaries, rent, software, marketing and so on. Net burn is gross burn minus the cash you collect in that month. Runway is worked out on net burn, but gross burn shows how much you would spend if revenue stopped.

How many months of runway should a startup have?

Many founders aim for 18 months or more after a raise and start fundraising with at least 9 to 12 months left, because a round can take six months or longer. Below six months, the priority shifts to cutting costs or bridging, not just raising.

Should runway include money investors have promised?

Only count money that is in your bank account. A signed term sheet is not cash, and rounds can slip or fall through. You can show a second scenario that includes committed funds, but label it clearly and make decisions on the cash you actually have.

How often should I recalculate runway?

Every month, right after you close the books, using actual cash and actual spending. Recalculate immediately when something big changes: a large customer leaves, a hire is approved, a round slips or a big one-off payment comes up.

Sources

• The formula and worked example in this post are standard cash arithmetic and don't depend on any regulation. Fundraising timelines vary widely; treat the ranges above as a planning guide, not a rule.
• Reserve Bank of India (opens in a new tab), for bank and interest information if you hold cash in deposits.