How to calculate cash runway
Cash runway is the survival metric. It tells you how long the business can operate before running out of money, which sets the clock on fundraising and profitability plans.
The number moves with both burn and revenue. Rising revenue extends runway; rising costs shorten it. Because it is so consequential, runway should be recomputed whenever either changes materially.
- Cash / monthly burn The formula
- Net burn Cash out minus cash in
- Recompute often Burn and revenue shift it
Short answer
Cash runway is how many months your cash will last at the current burn rate. Divide cash on hand by monthly net burn (cash out minus cash in). If you have 3,000,000 dollars and burn 250,000 dollars a month, runway is 12 months. Runway shrinks as burn rises and extends as revenue grows, so recompute it as those change.
Step by step
Determine cash on hand
Take your current total cash and equivalents available to fund operations.
Calculate monthly net burn
Net burn equals cash spent minus cash received in a typical month. Use a recent average, not a single anomalous month.
Divide cash by net burn
Runway in months equals cash on hand divided by monthly net burn. The result is how long the cash lasts at the current rate.
Model changes
Recompute runway under scenarios: higher burn from hiring, or lower burn as revenue grows. If revenue growth will turn net burn positive before cash runs out, you may reach profitability without raising more.
Worked example
You have 4,800,000 dollars in the bank. You spend 700,000 dollars a month and collect 300,000 dollars in revenue, so net burn is 400,000 dollars a month.
Runway = 4,800,000 / 400,000 = 12 months. If revenue grows to 500,000 dollars a month, net burn falls to 200,000 dollars and runway extends to 24 months. Modeling revenue growth against burn shows whether you reach profitability before the cash runs out.
How Ardovo handles it
Ardovo pairs revenue growth from its ARR data with finance burn to model runway under different scenarios. Rook flags when rising burn or slowing growth shortens runway, so you see the fundraising clock moving before it becomes urgent.
Frequently asked questions
What is the cash runway formula?
Cash on hand divided by monthly net burn, where net burn is cash spent minus cash received in a typical month. The result is how many months your cash lasts at the current rate.
What is a safe amount of runway?
Many startups aim to keep 12 to 18 months of runway, raising or reaching profitability before it runs low. Fundraising takes months, so acting well before runway approaches zero is essential to avoid a distressed raise.
How does revenue growth affect runway?
Rising revenue reduces net burn, extending runway, and can eventually turn burn positive so the business is self-funding. Modeling revenue growth against burn shows whether you can reach profitability before the cash runs out.