The two numbers that answer "how long do we have?"
A cash-flow forecast tells you what your bank balance will be week by week. Runway answers a blunter, more existential question: if nothing changes, how many months until the money runs out? For any business that isn't yet consistently producing positive operating cash flow, that single number is the most important one on the wall.
It's built from two pieces — burn rate (how fast you spend cash) and your cash on hand — and the math is simple enough to do on a napkin. The hard part is being honest about the inputs. This guide walks through both, with worked numbers. (General education, not financial or accounting advice.)
Burn rate: gross vs net
Burn rate is the amount of cash your business consumes per month. There are two versions, and confusing them is the most common mistake.
- Gross burn is your total monthly cash outflow — everything you spend: payroll, rent, software, vendor bills, loan payments, taxes. It ignores income entirely. Gross burn answers "what does it cost to keep the lights on?"
- Net burn is gross burn minus the cash you actually bring in. Net burn is the number that depletes your bank account:
net burn = cash out − cash in. If you spend $50,000 and collect $35,000 in a month, your net burn is $15,000.
Runway is always calculated on net burn, because that's the rate your reserves actually drain. Gross burn matters as a stress test: it's your runway in the worst case where revenue goes to zero.
A business with positive net cash flow — collecting more than it spends — has negative net burn, which means it isn't burning at all. It's accumulating. Runway, for that business, is effectively infinite, and the relevant question becomes growth, not survival.
Calculating runway
Once you have net burn, runway is just division:
runway (months) = cash on hand / average monthly net burn
Say you have $120,000 in the bank and your average net burn over the last three months is $15,000/month. Your runway is 8 months. That's the headline: eight months from today, at the current rate, the account hits zero.
Two refinements make the number trustworthy:
- Average several months, don't use one. A single month can be distorted by a quarterly tax payment or a big one-time invoice landing. Use a rolling 3-month average of net burn so a lumpy month doesn't make runway look better or worse than reality.
- Pull cash from the bank, not the books. Runway is a cash question. Use your reconciled cash balance — the same figure you'd verify in a bank reconciliation — not an accrual-basis number that includes receivables you haven't collected. Money owed to you isn't runway until it's in the account.
A worked example
Here's a fuller picture. Over the last three months a business recorded:
- Cash collected: $38,000, $41,000, $35,000 → average $38,000/month
- Cash spent: $52,000, $55,000, $52,000 → average $53,000/month
- Average net burn: $53,000 − $38,000 = $15,000/month
- Cash on hand today: $90,000
Runway = $90,000 / $15,000 = 6 months.
Now the number does work for you. Six months is enough time to act but not enough to relax. And it immediately suggests levers: the business spends $53,000 but only collects $38,000. Closing even part of that $15,000 gap — by tightening collections to pull cash in faster, trimming discretionary expenses, or raising prices — extends runway directly. Cut net burn to $10,000 and the same $90,000 buys you nine months instead of six.
What runway is really for
Runway isn't a doom number; it's a planning number. Watching the trend month over month tells you whether you're heading toward a wall or away from it:
- Runway shrinking means net burn is outrunning your cash — fine if it's a deliberate, funded investment, alarming if it's a surprise.
- Runway lengthening means the business is moving toward self-funding, the same milestone you'd see as consistently positive operating cash flow on the statement of cash flows.
A useful discipline: never let runway drop below the lead time it takes you to change it. If raising money, landing a big customer, or cutting costs takes three months to show up in the bank, then three months of runway is already an emergency, not a cushion. Pair this survival number with the forward-looking 13-week cash forecast: the forecast shows you the specific week trouble arrives, and runway tells you how much total room you have before it does.
Hosting Books computes net burn from your reconciled cash activity automatically, so runway stays current as transactions post — no spreadsheet to rebuild each month.
This article is general educational information about business finance concepts and is not financial or accounting advice for your specific situation.