Runway

What it means

Runway is how long a company can last on the cash it has if its income and spending stay the same. It is calculated as the cash balance divided by net monthly cash outflow, the burn rate, and is expressed in months.

The measure matters most for start-ups and companies that are not yet profitable and live on investment. If a company has 600 thousand euros in the bank and loses 50 thousand a month, its runway is 12 months. Within that time it must reach profitability or raise more money.

Runway is related to liquidity but looks forward. It does not say whether the company can pay its bills today, but when it will run out of money if nothing changes.

How it works in practice

For investor-funded clients we calculate runway monthly from current balances and the cash flow plan. We use the net cash outflow of recent months, adjusted for known future changes such as new hires or one-off payments.

Using scenario analysis we show how runway changes with slower revenue growth or higher costs. Founders can see how much room they have and when they need to start raising the next round.

We recommend starting a funding round no later than when runway drops below twelve to eighteen months. Raising money from venture capital funds takes months, and a company with a short runway negotiates from a weaker position.

What to watch out for

Runway calculated from an average can mislead. If costs are rising every month, the real period is shorter than a simple calculation suggests. We therefore calculate it from the budget for the coming months, not only from the past.

Cash should not include money the company cannot freely use, such as deposits, funds tied to a grant or customers’ money held as advances. Otherwise runway looks better than it really is.