Burn Rate vs Runway: The Math Most Founders Get Wrong

# Burn Rate vs Runway: The Math Most Founders Get Wrong

We get this question at least once a week: "How long until we run out of money?"

It sounds simple. It isn't.

We've sat in board meetings where founders confidently stated they had "12 months of runway" based on a quick calculation, only to discover—three months later—that they were actually down to 6 months. We've watched pitch decks get rejected because investors saw inconsistencies in burn rate calculations. And we've helped founders avoid catastrophic cash situations by clarifying the difference between gross burn, net burn, and actual runway.

The problem isn't that founders don't care about this math. It's that the concepts are often oversimplified into meaningless one-liners, and the real calculation—the one that actually predicts when you'll run out of cash—is more nuanced than most resources explain.

Let's fix that.

## Understanding Burn Rate: More Than Just Spending

### What Burn Rate Actually Measures

Burn rate is the rate at which your company spends cash. Simple definition. Complex reality.

There are two types of burn rate that matter:

**Gross Burn** is your total monthly operating expenses. If you're spending $50,000 on payroll, $15,000 on cloud infrastructure, $10,000 on marketing, and $5,000 on everything else, your gross burn is $80,000 per month.

**Net Burn** is your monthly cash burn after accounting for revenue. If that same company is generating $30,000 in monthly revenue, your net burn is $50,000 per month ($80,000 expenses - $30,000 revenue).

This distinction matters enormously. We've seen founders optimize for gross burn (cutting costs, increasing efficiency) while ignoring net burn (which is what actually depletes cash). In a Series A conversation, a founder who can't explain the difference loses credibility immediately.

### The Seasonal Reality Most Founders Ignore

Your burn rate isn't static. It changes.

Maybe you're hiring three engineers next quarter. Maybe you're launching a major marketing push. Maybe your AWS bill doubles in Q4. Real financial planning accounts for this.

We typically see founders calculate burn rate as an average across their entire history. That's a useful baseline, but it's dangerously optimistic if your burns is *increasing*. A company that burned $20,000/month six months ago but now burns $35,000/month will run out of cash much faster than the historical average suggests.

This is where [The Dynamic Financial Model: Beyond Static Spreadsheets](/blog/the-dynamic-financial-model-beyond-static-spreadsheets/) becomes essential. A proper model shows your burn trajectory over the next 12-24 months, accounting for planned hiring, revenue ramps, and seasonal variations.

## The Runway Calculation: Where Founders Actually Make Mistakes

### The Simple Formula (That Deceives You)

The textbook formula is:

**Runway (months) = Current Cash / Monthly Burn**

If you have $500,000 in the bank and you're burning $50,000 per month, you have 10 months of runway.

On paper.

In reality, that 10 months evaporates faster than founders expect. Here's why:

### The Cash Reserve Problem

Most founders use this formula and completely ignore the cash they need to keep in the bank.

You can't actually burn down to $0. You need operating capital for payroll timing, unexpected expenses, and basic solvency. We recommend our clients maintain a minimum cash reserve equal to 30-45 days of operating expenses. That means in the example above, you're not actually working with $500,000—you're working with approximately $450,000 ($500,000 - ~$75,000 minimum reserve).

Now your real runway is 9 months, not 10.

Smaller difference? Yes. But this compounds across multiple miscalculations.

### The Working Capital Trap

Here's where it gets expensive: your burn rate calculation assumes all your cash goes to expenses. But if your business model requires working capital, you're burning faster than you think.

If you're a SaaS company offering annual contracts with net-30 payment terms, you're extending credit to customers. If you're a marketplace paying vendors before you get paid by buyers, you're financing the gap. This isn't an expense on your P&L, but it absolutely depletes your cash.

We've watched companies with positive unit economics still run out of cash because they didn't account for [The Hidden Cash Flow Killer: Working Capital Mistakes Costing You Months of Runway](/blog/the-hidden-cash-flow-killer-working-capital-mistakes-costing-you-months-of-runway/). Your burn rate calculation must account for working capital changes, or you're operating blind.

### The Revenue Variability Problem

If you're calculating net burn, you're including revenue. Good. But how certain is that revenue?

We see founders pencil in 20% month-over-month growth and build their runway calculation around it. When growth turns out to be 12% (or 0%), the runway shrinks fast.

A more conservative approach: calculate runway under multiple scenarios. Best case, base case, and stress case. Your base case should assume something slightly below your historical growth rate. Your stress case should assume a revenue cliff (what happens if you lose your largest customer or a major feature breaks?).

Investors will ask this. If you don't have an answer, that's a problem.

## Gross Burn vs. Net Burn: Which One Matters More?

This is where we see founder logic diverge from investor logic.

**Founders often focus on gross burn** because it's the one they can control most directly. Need to extend your runway? Cut costs. Reduce hiring. Negotiate vendor contracts. These are concrete actions that lower gross burn.

**Investors care about net burn** because it reveals the underlying unit economics and path to profitability. A company burning $100,000 gross but generating $80,000 in revenue is fundamentally different from a company burning $100,000 with zero revenue.

In fundraising conversations, you need to own both numbers.

For example: "We're currently at $85,000 gross burn. With $35,000 in monthly revenue, our net burn is $50,000. We're on track to achieve ARR of $700,000 by Q3, which will bring us to net-positive by year-end." This shows you understand the full picture and have a path to sustainability.

Without that context, founders who cut gross burn look desperate. With it, they look strategic.

## Extending Runway: The Math You Actually Need

### The Three Levers

There are exactly three ways to extend runway:

1. **Reduce gross burn** (cut costs)
2. **Increase revenue** (improve net burn)
3. **Raise capital** (increase cash on hand)

Most founders focus on #1. Smart founders focus on #2 and #3.

Here's the math: cutting 10% of costs extends runway by roughly 10%. But increasing revenue by 10% *while maintaining cost structure* extends runway by much more. If you're at $500,000 cash, $50,000 monthly burn, and $30,000 monthly revenue, a 10% revenue increase (to $33,000) extends your runway from 10 months to 10.6 months. Not massive.

But if you can increase revenue 25% (to $37,500), you extend runway to 11.1 months. And if you simultaneously cut 10% of costs? Now you're at $45,000 net burn and 11.1 months of runway.

The key: revenue growth is a higher-leverage lever than cost cutting, especially if your unit economics are sound. [SaaS Unit Economics: A Complete Guide to CAC, LTV & Growth](/blog/saas-unit-economics-a-complete-guide-to-cac-ltv-growth/) breaks down how to identify whether you're actually moving toward profitability or just delaying the inevitable.

### The Fundraising Reality

Extending runway via capital raise changes the math entirely.

If you raise $2M at a $10M valuation, you've extended your runway dramatically. But you've also diluted equity, taken on investor expectations, and created pressure to hit certain milestones before your next raise.

When we help clients model runway, we always model two things: the runway from current cash (let's call it "organic runway") and the runway assuming a planned fundraise at a specific amount and timeline.

Founders often gloss over this. They say "we have 12 months of runway, and we're raising in month 8." But what if the raise slips to month 10? What if you only raise $1.5M instead of $2M? Suddenly runway collapses.

A better approach: model your path assuming the fundraise *doesn't happen*. That's your true runway. Then model scenarios where it does happen. This keeps you grounded in reality.

## Communicating Runway to Investors and Boards

This is where precision matters most.

Investors don't just want to know your runway number. They want to understand your assumptions. Here's what a strong runway presentation includes:

- **Current cash position** (with a date, since it changes daily)
- **Monthly gross burn** (with trend over the last 3-6 months)
- **Monthly revenue** (with growth trajectory)
- **Net burn** (with the math showing how you got there)
- **Calculated runway** (using net burn, accounting for minimum cash reserves)
- **Key assumptions** (hiring plans, revenue growth rates, seasonal variations)
- **Scenarios** (best case, base case, stress case—with runway for each)
- **Capital needs** (when you'll need to raise, how much, and what it accomplishes)

This level of detail isn't just for Series A pitches. Your board (if you have one) needs this information. Your team should understand it. And you should update it monthly.

We typically build this into a [Series A Metrics: What Investors Actually Want to See](/blog/series-a-metrics-what-investors-actually-want-to-see/) dashboard that founders review with us during monthly financial reviews.

## The Cash Flow Trap: Runway Isn't Just About Burn Rate

Here's the most dangerous mistake we see: founders who understand burn rate perfectly but still run out of cash.

It happens because burn rate is only one variable in the cash flow equation. [The Cash Flow Trap: Why Your Runway Calculation Is Probably Wrong](/blog/the-cash-flow-trap-why-your-runway-calculation-is-probably-wrong/) walks through how accounts payable timing, customer payment delays, and inventory changes can destroy a runway calculation that looks perfect on paper.

A startup might have $500,000 in the bank and think they have 10 months of runway. But if they're owed $200,000 that takes 60 days to collect, and they owe vendors $150,000 due in 30 days, their actual cash position is much tighter.

This is where cash flow forecasting becomes more important than P&L forecasting. Your burn rate tells you what you're spending. Your cash flow forecast tells you when the money actually leaves the bank.

## Practical: The Monthly Runway Check

Here's what we recommend to our clients:

**Every month, calculate three numbers:**

1. **Gross burn** (total expenses for the month)
2. **Net burn** (expenses minus revenue)
3. **Months of runway** (cash on hand minus 30-day reserve, divided by net burn)

Track these in a simple spreadsheet. Graph them. Watch for trends.

If runway is decreasing despite cost cuts, your revenue isn't growing fast enough. If burn is accelerating, you have a hiring or spending problem. If runway suddenly drops, you have a cash flow problem (likely working capital).

Do this monthly. Show it to your board. Use it to guide decisions.

This single practice—done consistently—prevents most of the runway catastrophes we see.

## Key Takeaways

- **Burn rate and runway are not the same thing.** Burn rate is a rate; runway is a duration. Understanding both is essential.
- **Gross burn and net burn tell different stories.** Investors care about net burn because it shows your path to profitability. You need to master both numbers.
- **Your runway calculation is probably too optimistic.** Account for minimum cash reserves, working capital changes, and revenue variability. Model multiple scenarios.
- **Revenue growth extends runway faster than cost cutting.** If your unit economics are sound, focus on scaling. If they're not, fix them before you fundraise.
- **Monthly tracking prevents disaster.** Update your runway calculation monthly. Watch for trends. Use it to guide decisions.
- **Fundraising changes the equation.** Don't build your plan around a fundraise you haven't closed. Model your path assuming it doesn't happen.

## What's Next?

If you're uncertain about your burn rate or runway—or if you're seeing inconsistencies across different financial models—we can help.

At Inflection CFO, we've helped dozens of startups nail their burn rate and runway calculations, identify hidden cash flow leaks, and communicate their financial position to investors with confidence. Our monthly financial reviews catch these issues before they become crises.

**[Schedule a free financial audit with one of our CFOs](/contact).** We'll review your current burn rate, runway calculation, and cash flow forecast. We'll identify gaps, point out opportunities to extend runway, and give you a clear picture of your financial position.

Your runway is your most precious resource. Let's make sure you understand it.