Burn rate measures how quickly a company uses cash over a period. Runway estimates how long current cash may last at a given rate of net cash use. The metrics are related, but a simple calculation is only a starting point: timing, growth, financing, and one-time payments can change the actual cash path.
Gross burn and net burn answer different questions
Gross burn is the cash outflow over a period, often summarized monthly. Net burn subtracts cash inflows from outflows for that period. If a company spends $200,000 in a month and receives $140,000 in cash, its net burn is $60,000 for that month.
Be consistent about what counts as cash in and cash out. Booked revenue is not necessarily cash received, and non-cash accounting expenses do not necessarily represent a cash payment in the same month. For liquidity planning, reconcile the calculation to bank cash and a clear period.
A simple runway estimate
A basic estimate is available cash ÷ average monthly net burn. With $1.2 million in available cash and a steady net burn of $60,000 per month, the static estimate is 20 months. This is a useful orientation, not a promise that cash will last exactly that long.
If net burn is zero or the business is cash-flow positive, this division does not produce a meaningful finite runway. If burn is changing quickly, a recent average may also mislead. Use a period that reflects the current operating plan and show the assumptions.
Build a cash forecast around timing
A stronger forecast lays out expected receipts and payments by week or month. Include payroll, tax, debt, annual contracts, customer payment delays, planned hiring, and large vendor costs. Model base, downside, and upside cases when uncertainty could materially change the cash balance.
Runway is sensitive to timing: a profitable contract may still arrive after a large payroll or renewal payment. Track the lowest projected cash point and the assumptions that move it, not only an average monthly burn number.
Use the metrics to guide decisions
Review burn and runway alongside growth, retention, gross margin, and the milestones the spending is intended to reach. Cutting spend can extend runway but may also delay important product or customer outcomes; increasing spend needs a clear hypothesis and a way to evaluate progress.
Update the forecast as actual cash differs from plan. Record changes in hiring, collections, financing, and customer behavior. A transparent rolling view gives leaders time to choose among options instead of treating runway as a static headline.
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