Runway

What Is Runway?

Runway is the number of months a company can keep operating at its current net burn before it runs out of cash. It is cash on hand divided by monthly net burn. Runway sets the deadline on every plan a leadership team makes, whether that is reaching profitability, hitting a milestone, or closing the next round.

How Runway Works

Cash runway is a countdown, and it moves for only two reasons: the cash balance changes or the burn rate changes. Everything a finance team does to protect runway falls into one of those two levers.

The number is only as good as the inputs. Runway should be built from cash actually in the bank, not from bookings or recognized revenue. A company with $5,000,000 of ARR billed monthly and 90 day payment behavior has far less cash available than the revenue line suggests. Undrawn facilities are not cash either. They are optionality, and their conditions tend to disappear at the moment you need them.

Report runway two ways: the flat calculation using last month's burn, and a forward model reflecting planned hiring, renewals, seasonal collections, and known one time costs such as an annual insurance premium. The flat number is for the board deck. The model is for the decisions.

How to Calculate Runway

The calculation is simple. Take the cash balance and divide by the average monthly net burn, usually a trailing three month average to smooth out lumpy months.

Formula: Runway in Months = Cash Balance / Monthly Net Burn

A company holds $3,000,000 in the bank. It spends $500,000 a month and collects $200,000 a month, so net burn is $300,000. Runway is $3,000,000 / $300,000, or 10 months.

If that company collects an extra $100,000 a month by moving customers to annual upfront billing, net burn falls to $200,000 and runway extends to 15 months. Five months bought without cutting a single cost. This is why collections timing sits alongside cost control as a runway lever.

Runway in Plain English

Runway is how long you have before the bank account hits zero. Twelve months of runway means twelve months to become self-sustaining or raise more money. Long runway lets a company make decisions on the merits. Short runway makes every decision a hostage negotiation, and everyone in the room can tell.

Net Burn vs Gross Burn

Gross burn is total cash out the door each month, every expense, ignoring anything coming in. Net burn is gross burn minus cash collected. The company above has a $500,000 gross burn and a $300,000 net burn.

Runway is normally calculated on net burn because that is the real depletion rate. Gross burn still matters because it shows the cost base you would have to defend if revenue stopped. A company with $300,000 of net burn built on $350,000 of gross burn is in a very different position from one built on $2,000,000.

Report both. Net burn tells you how long you have. Gross burn tells you how much of the problem is within your control.

How to Extend Runway

There are three levers, in ascending order of pain.

Collect faster. Move customers from monthly to annual upfront billing, tighten payment terms, fix the dunning process, and chase aged receivables. This converts revenue you already earned into cash you already have.

Raise or borrow. Equity dilutes. Venture debt and bridge financing do not, but bridge financing is expensive precisely because it is used under time pressure, which is why it should be arranged before it is needed. Non-dilutive options tied to existing contracts sit between the two.

Cut. Reducing headcount or marketing spend works immediately on gross burn but often damages the growth that justified the valuation in the first place. Cuts made at nine months of runway are strategic. Cuts made at three months are triage.

Runway, Default Alive, and Fundraising Timing

Default alive asks a sharper question: on the current growth and burn trajectory, would this company reach profitability before the cash runs out with no further funding. If yes, it is default alive and can raise on its own terms. If no, it depends on someone else's decision.

The practical rule on timing is to start fundraising 6 to 9 months before runway would expire. Institutional rounds take 3 to 6 months from first conversation to money in the bank, so a company beginning a process with three months of runway is negotiating with a visible deadline. Investors price that deadline into the terms every time.

Runway and the Closing Motion

Runway is the reason the Collect stage of the Closing Motion carries so much weight. A signed contract does not extend runway. Collected cash does, and the gap between the two is where months quietly disappear. Ratio built the Closing Motion for B2B technology scale ups so that a buyer's yes converts to cash upfront rather than to a receivable. With Ratio Trade, the buyer pays monthly or quarterly while the seller collects the full total contract value at signature, so new bookings add runway in the quarter they close. Ratio Boost does the same for contracts already on the books, converting existing recurring revenue into upfront capital with no dilution and no warrants. Neither creates new revenue. Both move revenue you already own into the period where it changes your decisions.

Common Questions About Runway

How many months of runway should a company hold?

Eighteen months is the common target for venture backed companies, and twelve is where fundraising becomes urgent. Below six months, options narrow sharply and terms get materially worse.

Should runway use net burn or gross burn?

Use net burn, since it reflects actual cash depletion after collections. Track gross burn alongside it, because gross burn shows how large the fixed cost base is and therefore how much room exists to cut if revenue disappears.

Does an undrawn credit facility count toward runway?

Report it separately, never inside the runway number. Facilities carry covenants and material adverse change clauses, and availability can be reduced or withdrawn in exactly the conditions that create the need to draw. Cash in the bank is cash. Everything else is a plan.

Key Takeaways

• Runway is cash balance divided by monthly net burn, expressed in months.
• Build it from cash collected, not from bookings or recognized revenue, and use a trailing average burn.
• Net burn shows how long you have, gross burn shows how much of the cost base you could defend.
• Faster collection extends runway without cutting anything, which is why billing terms are a finance decision.
• Start fundraising 6 to 9 months before runway would expire, because a deadline gets priced into the terms.