How to Calculate Business Runway Without Fooling Yourself
How to calculate business runway: cash divided by net burn is the easy part. Here are the five steps and the traps that make a confident number wrong by months.
To calculate business runway, take the cash actually in your account and divide it by your monthly net burn, averaged over the last three months. Then run it twice: once on current spend, once on what you plan to commit to. Quote it in one fixed sentence every time.
How to calculate business runway in five steps
The sum is the easy bit. Cash divided by monthly burn. Any child can do it.
The hard bit is that every term in that sum has a trap in it. Get one wrong and you'll produce a figure that's precise, calm and wrong by months. So do it in order, and settle each term before you touch a calculator.
- Write down opening cash. What is in the account today. Not what's invoiced, not what's promised.
- Work out net burn. Everything going out, minus everything coming in, per month.
- Average it over a trailing three months. One month is noise.
- Divide. Opening cash over net burn gives you months.
- Run it again on your plan. Add what you intend to commit to, and divide again.
That's the whole method. Now the traps, one at a time.
Step one: count cash, and only cash
Money in the account counts. Everything else is a story.
Money someone has committed to but not sent doesn't count until it's sent. A signed agreement isn't money. An undrawn credit facility isn't runway either. It's an option with conditions, and the conditions tighten exactly when you need it. A grant that's been awarded but not paid out is nothing until the day it lands, and those timelines are their own genre of optimism.
Does that mean ignoring the money you're owed? No. Keep a separate, clearly labelled line for near-certain incoming amounts with expected dates. Just never let it merge into the balance.
Everyone who has been surprised by their own runway made that merge somewhere. Ask yourself where you've made it.
Free guide · 23 pagesKnow how long you actually have.The Runway Playbook: the number that sets every other deadline, and how to stop finding out late.Get the free guide →Step two: net burn, not the flattering one
Gross burn is everything going out. Net burn is what goes out minus what comes in.
For runway, use net. It tells you how fast the balance is actually falling, and that's what runway is. People quote whichever one flatters them, usually without noticing. The full argument is in gross burn vs net burn, and it's worth five minutes.
Step three: pick a window that isn't last month
Last month is the worst window you could choose. One annual insurance payment, a tax bill, a late customer or a single large receipt will distort it completely. You'll get a number that's wrong by months, in either direction, and you won't know which.
Use a trailing three-month average as your default. If your business has seasons, know them. And if something structural genuinely changed, say so out loud and recalculate from the new base. Don't let old months drag the average toward a comfortable answer.
Put the lumps on the calendar
An average hides a nasty fact. It smooths things that don't smooth in real life.
Insurance, renewals, tax cycles and a big one-off purchase all land in one month, not twelve. So an average burn can look comfortable and still fail a specific month. Put each known lump in the month it actually hits. Then look at the balance month by month, not only at the headline figure.
This takes ten minutes and it's the cheapest insurance in the whole exercise. You find the bad month while it's still a spreadsheet cell, and not yet a Tuesday morning.
Be honest about the money coming in
Net burn depends on income, so income needs the same discipline as cash. Sort what you expect into three piles.
- Contracted. Signed, with a date.
- Probable. A customer renewing on their usual pattern, or a deal at a stage that historically closes.
- Hoped. The pipeline.
Calculate the runway you steer by on the first two. Keep the third visible, as a separate upside line, so you can see what it would do without letting it pay for a decision.
Nearly every dangerous runway number has optimistic pipeline quietly baked into the base case. The person who built it doesn't know, because they built it on a good day. If your figure looks great, go and find the hope in it. The full treatment is in how to forecast income for runway.
Where each input goes wrong
| Input | Use this | The classic mistake |
|---|---|---|
| Opening cash | What is in the account today | Adding invoices sent, deals signed or credit available |
| Burn type | Net burn | Quoting gross, or quoting whichever looks better |
| Burn window | Trailing three-month average | Taking last month, which one annual bill can wreck |
| Incoming money | Contracted and probable only | Letting pipeline you hope for fund the base case |
| Lumpy costs | On the calendar in the month they land | Averaging them away and meeting them by surprise |
| Which plan to calculate business runway on | Both current and planned | Only calculating the comfortable one |
Print that. Check it before you quote any number out loud.
Free assessmentHow trapped are you, really?Take the Corporate Suffocation Index, the free solopreneur readiness assessment.Take the assessment →Step five: calculate business runway twice
This is the step almost everyone skips, so slow down.
Current-burn runway assumes nothing changes. It answers: how long do I have if I carry on exactly like this?
Planned-burn runway adds the things you intend to commit to. It answers: how long do I have if I do what I said I would?
The second number is always shorter. That's why people avoid it. It's also the honest one, and the one you plan with. If you're scaling, you're about to add costs: a contractor, a tool, a campaign. Steering by current burn means steering by a number you've already decided not to follow.
When the two diverge sharply, you haven't made a plan. You've made a wish with a shopping list attached.
The sentence you quote every time
Now the part that stops midnight arguments with yourself. Write your runway as one sentence and use it word for word:
"I have N months, calculated on net burn over a trailing three-month average, counting only cash actually in the bank, assuming the current plan."
Every qualifier in that sentence is a place where two readings would otherwise disagree. Quote the same sentence each time and runway becomes a fact you can act on, rather than a topic you re-litigate whenever you're tired.
It also forces a decision you'd otherwise dodge. Which plan? Swap "current plan" for "planned commitments" and see how the number feels. That feeling is information.
What to do when the answer is short
A short number isn't a verdict. It's a date, and a date is something you can act on.
If it's shorter than you hoped, don't recalculate until it looks better. Check the definitions first, because a wrong number is worse than a bad one. Then look at the levers in order of cost: unused spend first, money you're owed second. Both routinely produce months at almost no cost. Those are covered in how to extend your runway.
If it's longer than you feared, test the good news as hard as you'd test bad. A payment that slipped into next month flatters a number just as well as a real improvement does.
Either way, build the thing that makes this repeatable. A small model beats a heroic one-off calculation. Here's how to build a runway model you'll still use in six months.
Free guide · 23 pagesKnow how long you actually have.The Runway Playbook: the number that sets every other deadline, and how to stop finding out late.Get the free guide →Your Monday version
You don't need software to calculate business runway the first time. You need an hour and honesty.
- Open your bank balance. Write the figure down. That's opening cash.
- Pull the last three months of money out and money in. Work out the monthly net figure.
- List every annual and quarterly bill you know is coming, with its month.
- Divide once on current spend. Divide again including everything you plan to sign.
- Write the one sentence. Date it. Keep it somewhere you'll see it.
That's it. You now know more about your own business than most owners who have run one for years. Next month you'll do it again and compare, and that comparison is where the real value starts.
Free assessmentHow trapped are you, really?Take the Corporate Suffocation Index, the free solopreneur readiness assessment.Take the assessment →Frequently asked questions
What is the formula for business runway?
Cash in the bank divided by monthly net burn. The formula is the easy part. The work is in settling what counts as cash, which burn you mean, and which window you average over.
Should I use gross burn or net burn?
Net burn for runway, because it shows how fast the balance is actually falling. Watch gross burn too. High gross burn with a comfortable net burn is fragile, since the whole cost base appears the moment revenue wobbles.
Why not just use last month's spending?
One month is noise. A single annual bill or one large receipt hands you a number that is wrong by months. A trailing three-month average is a better default, adjusted if something structural changed.
Do I count invoices I have sent?
Not as cash when you calculate business runway. Sent, signed, awarded and promised all mean not yet in the bank. Track them on a separate line with expected dates, and move them into the balance only when the money lands.
The full method, with the checklists, is in The Runway Playbook, a free 23-page playbook.
How trapped are you, really?
Take the Corporate Suffocation Index, the free solopreneur readiness assessment.