Runway is the number of months your company can keep operating before cash runs out. The standard formula is cash on hand divided by monthly net burn. That formula is correct, and it is also the reason most runway numbers are off by a month or two in either direction. The burn figure in the denominator is an average of what you already spent. It has no idea about the renewal due next month, the legal bill that is coming, or the invoice a customer has already agreed to pay.
This guide covers the quick version first, then how finance teams build a forward-looking runway forecast that holds up when a founder or an investor asks what the next two quarters look like.
Burn rate and runway, defined once
Gross burn is total cash going out each month: payroll, rent, software, contractors, everything.
Net burn is gross burn minus cash coming in. If you spend $100,000 a month and collect $25,000 from customers, net burn is $75,000.
Runway is cash on hand divided by net burn. With $600,000 in the bank and $75,000 of net burn, runway is eight months.
That is the whole calculation, and every runway calculator online stops here.
Which months to average
Conventional wisdom usually says use your 3 or 6 month average monthly burn. The 3 month average reacts faster to changes in spending. The 6 month average smooths out one-off spikes.
A simple rule for picking between them: look at the last three months. If one of them had an unusual item, a large annual payment, a one-time legal bill, a hiring push, use six months so the spike does not distort the average. If the three months look like each other, use three.
Either way, you are describing the past. Both averages assume the next 3 to 6 months look like the last 3 to 6 months, and for a company that is hiring, renewing contracts, or closing customers, they will not.
Why average burn falls short
Three things sit outside the average and inside the next quarter:
- Accounts payable (A/P) and expected bills. Everything already invoiced to you, plus the renewals, insurance, legal and accounting bills, and deposits you know are coming but have not been billed for yet.
- Accounts receivable (A/R) and expected revenue. Everything you have already invoiced, plus signed deals with a payment date, approved grants, and credits with an expected arrival.
- Decisions already made. A hire starting next month, a contractor rolling off, a price increase that takes effect in January.
None of these show up in an average of past months. All of them show up in your bank balance within the quarter.
How to build a runway forecast
A runway forecast starts with the same two inputs, cash on hand and a baseline burn, and adds what you already know is coming.
Step 1: Set the baseline. Take your 3 or 6 month average net burn, using the rule above. This covers the recurring spend that does not change much month to month.
Step 2: List A/P and expected bills. Every bill already on the books, plus every renewal and obligation due in the next quarter, with an amount and a month. Add an estimate for bills you expect but have not received, like legal or marketing.
Step 3: List A/R and expected revenue. Every invoice already issued, every signed deal with a payment date, every grant or credit with an expected arrival. Assume collections land a few weeks late.
Step 4: Add decisions already made. New hires, departures, contract changes, price changes. Put each one in the month it starts.
Step 5: Lay it out by month. Baseline burn, plus A/P and expected bills, minus A/R and expected revenue, adjusted for decisions, for each of the next 3 to 6 months. Cash on hand minus the running total gives you projected cash at the end of each month, and the month it crosses zero is your runway.
Step 6: Run three cases. Base is the forecast as built. Low assumes inflows come in 20 percent lighter and collections run 30 days slower. High assumes inflows come in 20 percent stronger. The gap between Low and Base is the number to watch.
A worked example
A company has $600,000 in the bank and a 3 month average net burn of $75,000, so the simple formula says eight months of runway.
The forward view for the next quarter:
Month 1: baseline burn $75,000, plus software renewals (A/P) $30,000, minus a customer invoice (A/R) $40,000. Net cash out $65,000. Cash at month end $535,000.
Month 2: baseline burn $75,000, plus a legal bill (expected) $15,000, plus two new hires $20,000. Net cash out $110,000. Cash at month end $425,000.
Month 3: baseline burn $75,000, plus the two hires $20,000. Net cash out $95,000. Cash at month end $330,000.
After three months the company has $330,000 left and a run rate near $95,000 a month, so it has about three and a half months beyond that. Total runway is closer to six and a half months than eight. Nothing surprising happened. Every item in the table was known before the quarter started.
That gap of six weeks is the difference between starting a fundraise in time and starting it late.
The 13-week cash flow
For companies that want tighter visibility, the finance-team tool is a 13-week cash flow: the same forecast at weekly resolution for one quarter. It catches the weeks where several payments land together, which a monthly view hides. Payroll twice a month plus a renewal plus a tax payment can put three heavy weeks in one month, and a monthly average will tell you that month was fine.
How Ryze does this
For clients, every bill and invoice, issued or expected, feeds into burn and runway forecasting in the client portal, with Low, Base, and High scenarios and a 13-week cash flow view. Runway is shown with and without upcoming items, so the gap between the average and the forecast is always visible.
If you want to build a forward-looking model yourself, the free Forecast Generator produces a multi-year financial model from your inputs, and Ryze Books turns bank statements into financial statements you can forecast from.
FAQ
What is a good startup runway?
Most investors expect 18 to 24 months after a round. Below 12 months, the next fundraise should already be in motion, since a raise takes 3 to 6 months end to end.
Should I use gross or net burn for runway?
Net burn. Runway measures how long cash lasts, and revenue coming in extends it. Gross burn is useful for understanding cost structure, and it is the conservative choice for a company with uncertain revenue.
Does A/R count toward runway?
In a runway forecast, yes, in the month you expect to collect it, with a few weeks of delay built in. In the simple cash-divided-by-burn formula, no, since that formula only looks at cash already in the bank.
How often should I update a runway forecast?
Monthly at minimum, after the books close. Weekly if runway is under nine months or if payments are lumpy.
What is the difference between a runway calculation and a runway forecast?
A calculation divides cash by average past burn. A forecast adds A/P, A/R, expected bills, expected revenue, and the decisions you already know about, and projects cash month by month. The calculation is a snapshot of the past. The forecast is a view of the next quarter.