Enter cash at the start and end of a period and the number of months it covered. You get net burn per month, runway in months, and the month the money runs out if nothing changes.
Burn rate is measured from the bank, not from the income statement. It is the one number in business finance that cannot be improved by an accounting choice, because it is the difference between two balances that either exist or do not.
Two numbers share the name and they answer different questions.
Gross burn is everything leaving the account in a month. Salaries, rent, suppliers, advertising, loan repayments. It is what the business costs to run regardless of how it is doing.
Net burn is gross burn minus the cash coming in. It is the figure that eats the balance, and it is the one runway is calculated from.
The gap between them matters more than either alone. A company with $46,410 of gross burn and $37,410 of income is burning $9,000 a month. The same company losing a fifth of its revenue is burning $16,482, and its runway does not shorten by a fifth, it shortens by nearly half. Net burn moves far faster than the thing that caused it, and this is what makes cash planning feel like it collapses without warning.
Quote gross burn when discussing what to cut. Quote net burn when discussing how long you have.
Runway is normally stated in months, which encourages a kind of comfortable vagueness. Twenty one months of runway sounds like a long time. The eleventh of May sounds like a deadline.
| Net burn per month | Runway on $186,000 | Reaches zero in |
|---|---|---|
| $5,000 | 37.2 months | just over 3 years |
| $9,000 | 20.7 months | 1 year 9 months |
| $16,500 | 11.3 months | under a year |
| $25,000 | 7.4 months | under 8 months |
| $40,000 | 4.7 months | under 5 months |
Note how brutally non-linear the table is. Doubling burn from $5,000 to $9,000 costs sixteen months of runway. Doubling again to $16,500 costs another nine. The first increases hurt most, which is the opposite of how people usually imagine it.
If you are raising money, the useful figure is not runway but runway minus the time a raise takes. A process that runs four to six months against eleven months of runway means the real decision point is about five months away, not eleven.
Advertising is usually the largest genuinely controllable line in gross burn, which makes it the first thing considered when runway gets short. In the worked example it is $10,000 of $46,410, or 21.6 percent.
The instinct is to cut it, and the arithmetic seems to support that: remove $10,000 of outflow and net burn moves from $9,000 to a surplus. But this only holds if the revenue is independent of the spend, which for a business acquiring customers through paid media it is not.
The honest version of the calculation asks what share of the $37,410 coming in depends on the $10,000 going out. If half of it does, cutting the budget removes $10,000 of cost and $18,705 of income, and net burn gets worse, not better. This is why cutting advertising to extend runway sometimes shortens it.
What settles the question is the payback period, not the burn rate. Spend that returns its cost within the runway extends it. Spend that pays back over eighteen months when you have eleven is a bet you cannot afford, regardless of how good the return eventually is.
Twenty one months of runway sounds like a long time. The eleventh of May sounds like a deadline.
Burn measured across a single month is close to meaningless. Quarterly tax, annual software renewals and supplier terms mean any given month is unrepresentative. Average over at least three, ideally six, and if a large one-off sits in the window, say so rather than letting it set the trend.
The second trap is treating runway as a forecast. It is an extrapolation of the recent past onto an unchanged future, and the future is rarely unchanged. Hiring, seasonality and a single large invoice paid late all move it. Recalculate monthly rather than quoting a figure from last quarter.
The third is confusing profit with cash. A profitable month can burn cash if inventory was bought ahead or a customer pays on sixty day terms. The income statement and the bank statement answer different questions, and burn rate only listens to the second.
The last is forgetting that runway assumes the money is spendable. Cash committed to a deposit, a tax bill already accrued or a supplier payment due next week is not runway, it is someone else’s money still sitting in your account.
Gross burn is all cash leaving the account in a month. Net burn subtracts the cash coming in and is the figure that actually reduces your balance, so runway is always calculated from net burn.
At least three, ideally six. Quarterly tax, annual renewals and supplier payment terms make any single month unrepresentative, and a one-off in a short window will set a trend that does not exist.
Only if the revenue is genuinely independent of the spend. If half your income depends on the budget, cutting it removes more cash in than cash out and shortens runway. The deciding number is payback period, not burn rate.
No. Runway assumes nothing changes and that all the cash is actually spendable. Money already committed to tax, deposits or supplier payments due is not runway even though it is sitting in the account.