How to calculate your startup’s runway
Runway is the first number an investor asks for and the one a founder should know without looking. Here is how to work it out properly, and the mistakes that make it look longer than it is.
Runway is how many months your cash lasts at the current pace: cash in the bank divided by monthly net burn. With ₹50 lakh in the bank, ₹9 lakh going out and ₹4 lakh coming in each month, net burn is ₹5 lakh and runway is 10 months.
The formula
net burn = money out a month − money in a month runway = cash in the bank ÷ net burn
Money in means money that reached the bank, not invoices you raised. Money out is everything that left: salaries, rent, suppliers, software, loan repayments and taxes.
A worked example
An example company, with round numbers (the calculator below starts with the same ones):
| Line | Amount |
|---|---|
| Cash in the bank today | ₹50,00,000 |
| Money out a month | ₹9,00,000 |
| Money in a month | ₹4,00,000 |
| Net burn | ₹9,00,000 − ₹4,00,000 = ₹5,00,000 a month |
| Runway | ₹50,00,000 ÷ ₹5,00,000 = 10 months |
If nothing changes, this company’s cash runs out in about 10 months.
Gross burn or net burn
Gross burn is everything that goes out: ₹9 lakh a month in the example. Net burn subtracts what comes in: ₹5 lakh. Runway uses net burn.
Gross burn still matters. Divide cash by gross burn and you get the worst case, if no money came in at all: ₹50 lakh ÷ ₹9 lakh is about 5.6 months. If one customer brings in most of your revenue, that worst case is closer than it looks.
Use three months, not one
A single month is noisy. An annual software bill, a customer who paid two invoices at once, or a bonus can swing one month by lakhs. Average the last three complete months of money in and money out instead. That’s what Cassence does.
Five mistakes that flatter runway
- Taking cash from the books, not the bank
Books drift: a missed entry, a payment booked twice. Start from the balance on your bank statement, checked by a person. Cassence only uses a balance someone confirmed.
- Counting invoices as money in
An invoice isn’t cash until it’s paid. And GST is owed when you invoice, so a big unpaid invoice can cost you its GST before the customer pays.
- Forgetting what doesn’t come every month
Advance tax is paid on 15 June, 15 September, 15 December and 15 March. Annual subscriptions, insurance and bonuses land once a year. Put them on the month they fall in, not spread across the year.
- Assuming burn stays flat
The formula assumes the next months look like the last three. If you plan to hire, burn rises and runway shrinks. Add planned costs before you divide.
- Counting money you can’t spend
TDS your clients deducted only comes back as an income-tax refund after the year closes. Security deposits, and gateway money not yet settled to your bank, aren’t spendable either.
How much runway is enough
A common rule of thumb is to start raising with at least 12 months left. A round often takes 3 to 6 months, and you want room if it takes longer.
Cassence flags runway under 6 months as a problem to act on this month, and under 3 months as one to act on this week. Below 6 months, start raising or cutting now; the options narrow as the months run down.
Try your own numbers
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10.0 months
of runway
Workable, not comfortable. There's time to fix the biggest cost line before it becomes urgent.
From your real books, Cass works this out every night, with the lowest week and the customer behind it. Get your diagnosis
Four ways to lengthen it
- Cut or delay the largest cost you can. Start with what you could pause for a quarter, such as tools you pay for twice.
- Collect what you’re owed. Overdue invoices are runway sitting in someone else’s bank. Chase the largest and the latest first.
- Bring in more each month. A price change or a faster close moves net burn as much as a cut does.
- Raise money or a working-capital line, early. Both take months. Start while you can still choose.
Before you decide, look at the next 13 weeks rather than the monthly average: salaries, GST and a big supplier bill can land in the same week. See the 13-week cash forecast and the cash planner.
Questions
What is a good runway for a startup?
A common rule of thumb is to start raising with at least 12 months left, because a round often takes 3 to 6 months and can take longer. Under 6 months, act this month: cut what can wait and start raising now. Under 3 months, act this week.
Is runway calculated with gross burn or net burn?
Net burn: what goes out minus what comes in. Gross burn (everything that goes out) gives a worst case: how long cash lasts if no money came in at all.
What if we bring in more than we spend?
Then there is no burn, and cash doesn't run out at this pace. Watch who pays late and what's due instead, because one late customer can turn a good month into a burning one.
How often should I work out runway?
At least once a month, after you have the bank statement, and whenever spending jumps. Cassence works it out every night from your books and a bank balance you confirmed.
Should GST and TDS be counted in burn?
Yes. GST and TDS you pay are cash going out, on their own dates. GST is owed when you invoice, so a large unpaid invoice can mean paying its GST before the customer pays you.
Let Cass work it out every night
Cassence reads your books and bank statements, works out runway from three months of real entries and a confirmed balance, and tells you what would lengthen it.