How much runway do you have? That depends on how soon you expect to secure more funding or generate enough revenue to cover your expenses
Understanding your burn rate and runway is essential, whether you’re handling it yourself or have a CFO or accountant on board. It's not a one-time task, but an ongoing process as your business grows and evolves.
The big question: how much runway do you actually have?
That hinges on how long it’ll take to secure more funding or generate enough revenue to cover your expenses.
If your cash reserves won’t last until your next funding round or product launch, you’re in a tight spot. But if your revenue is climbing and funding is on the horizon, things might not be as bleak.
Ultimately, interpreting burn rate and runway depends on the specifics of your business. Still, it’s useful to compare where you stand with typical startup figures to help plan your spending and financing needs.
That's why we built this handy burn rate calculator, so you can get quick insights into your burn rate and make informed decisions.
Burn rate is the speed at which a startup spends its cash. It’s a critical metric because it shows how long your business can survive before running out of money. Knowing your burn rate helps you manage expenses and plan for funding rounds to keep the business running.
Gross Burn Rate is the total amount of money your startup spends each month, without considering revenue. Net Burn Rate takes your revenue into account, showing the net amount of cash you’re losing each month. For example, if you spend £10,000 but make £2,000 in revenue, your gross burn rate is £10,000, while your net burn rate is £8,000.
Runway is the amount of time your startup can survive before running out of cash, based on your current burn rate. The formula is: Runway = Cash in Bank ÷ Burn Rate. For example, if you have £100,000 in the bank and your burn rate is £8,000 per month, your runway is: Runway = £100,000 ÷ £8,000 = 12.5 months. This means you have 12.5 months before you run out of money if your expenses and income stay the same.
You can reduce your burn rate by cutting non-essential expenses, negotiating better deals with suppliers, automating processes, or finding more cost-effective marketing strategies. However, you should avoid cutting areas that drive growth, like product development or customer acquisition, as this could slow down your business in the long run.
