What Is Burn Rate and Why Runway Matters

Burn rate is how much cash your business spends each month beyond what it brings in. Runway is how many months you can keep operating before you run out of cash.

These two numbers tell you something every business owner needs to know: how long can you survive if nothing changes?

How Burn Rate Works

There are two types:

Gross Burn Rate = Total monthly expenses (fixed + variable costs), regardless of revenue.

Net Burn Rate = Monthly expenses minus monthly revenue. This is what actually matters, because it accounts for money coming in.

If you spend $15,000/month and earn $10,000/month, your net burn rate is $5,000/month.

How Runway Works

Runway = Cash on Hand / Net Burn Rate

If you have $30,000 in the bank and a net burn rate of $5,000/month, you have 6 months of runway.

The calculator also shows your zero-cash date, the approximate month and year when your cash runs out at the current rate.

Why This Matters

• New businesses: Most startups and new small businesses run at a loss initially. Knowing your runway tells you how much time you have to reach profitability.
• Seasonal businesses: Revenue dips can drain cash fast. Plan for lean months.
• Growth mode: Expanding (new hires, new location, inventory) increases burn. Make sure you have enough runway to see the investment through.
• Downturns: When revenue drops unexpectedly, your burn rate tells you how urgently you need to act.

Scenario Modeling

The calculator lets you test "what if" scenarios:

• What if I cut a specific expense? Reduce fixed or variable costs and see how much runway you gain.
• What if revenue grows by X%? See how quickly growth shortens your path to profitability or extends runway.
• What if I raise prices? Higher revenue per customer reduces burn.

Small changes can have a big impact. Cutting $2,000/month in expenses on a $5,000 burn rate adds 10 months of runway on a $30,000 cash balance (from 6 months to 10 months).

Rules of Thumb

• Less than 3 months of runway: Take immediate action. Cut non-essential spending, accelerate collections, or seek emergency funding.
• 3-6 months: You have some breathing room, but start planning now. Identify which expenses could be reduced if needed.
• 6-12 months: Healthy range for most small businesses. Focus on growing revenue and maintaining this buffer.
• 12+ months: Strong position. You can afford to invest in growth without existential risk.

How to Extend Your Runway

1. Cut variable costs first. These are easier to reduce without structural changes.
2. Renegotiate fixed costs. Landlords, vendors, and service providers will often negotiate if the alternative is losing your business entirely.
3. Speed up collections. Invoice faster, offer early-payment discounts, enforce payment terms.
4. Delay non-critical purchases. That new equipment can wait if your cash position is tight.
5. Grow revenue. Raise prices, add upsells, or expand to new channels.

Use this calculator alongside the Break-Even Calculator and Cash Flow Forecast for a complete picture of your financial health.