For startup founders and business owners, cash runway is one of the most important financial metrics. Investors and CFOs look at months of runway to judge whether the business can hit milestones or needs to raise funding. Too little runway weakens negotiating power, while more runway gives founders flexibility to grow revenue and refine their strategy. At its core, cash runway is about knowing your numbers — understanding cash burn rate, tracking cash flow, and applying the cash runway formula to calculate how much time is left before the company’s cash is exhausted.
Calculate cash runway
The cash runway formula is straightforward:
Cash runway = Current cash balance ÷ monthly cash burn rate
- Cash balance: The total amount of cash available in bank accounts and liquid assets, sometimes called cash on hand.
- Monthly cash burn rate: The net burn rate that accounts for both inflows and outflows. Outflows include payroll, rent, insurance, vendor payments and other recurring costs. Inflows include sales, contracts and receivables that improve cash position.
Example 1: If a startup’s current cash balance is $600,000 and its monthly cash burn rate is $100,000, cash runway is six months.
Example 2: Suppose the same company begins generating $40,000 per month in recurring revenue. Its monthly cash burn rate drops to $60,000, which extends the number of months of cash runway to 10.
This simple runway calculation is a useful rule of thumb, but it does not capture seasonality, growth-related outflows, or delayed inflows. Many startup founders build more detailed Excel financial models to test scenarios and update assumptions in real time.
SaaS and startup-specific considerations
SaaS startups face unique challenges with cash runway. Because revenue is tied to subscriptions and payment terms, a delay in accounts receivable can distort the company’s cash position.
Recurring revenue creates predictability, but overspending on sales and marketing initiatives can quickly erode runway. Many SaaS founders track burn multiple, which measures how efficiently cash burn translates into new recurring revenue. Pricing experiments also play a role. Offering discounts may boost customer acquisition but lower cash inflows, making profitability harder to achieve.
Seasonality matters too. SaaS companies often see spikes in customer upgrades at fiscal year-end, while cash inflows may lag behind. Without adjusting forecasts, founders may misjudge the true amount of time their cash reserves will last.
What makes a good cash runway?
There is no single cash runway definition of “good.” Still, investors and CFOs often use standard benchmarks. A common rule of thumb is 12 - 18 months of cash runway, with many recommending 24 - 36 months in tighter fundraising markets.
Industry also plays a role. Biotech startups may need longer runways because clinical trials extend timelines. By contrast, consumer software startups with faster revenue cycles may operate with less.
A good cash runway balances enough cash to weather volatility with flexibility to invest in growth. For an early-stage startup, this means aligning the number of months of cash runway with planned milestones such as product launches or acquiring your first paying customers. For growth-stage companies, it means extending runway long enough to reach profitability targets.
Extending your cash runway
To add more cash to the balance sheet, startups can:
- Optimize cash flow: Accelerate accounts receivable collections, negotiate payment terms with vendors, and monitor outflows carefully.
- Cutting costs: Reduce operating expenses like office space, contractors, or underperforming initiatives, while maintaining investments critical to growth.
- Drive profitability: Improve pricing strategies, lower acquisition costs, and reduce overspending.
- Secure additional funding: Consider fundraising or raising additional capital before the cash position becomes critical.
Excel models and dashboards allow founders to model scenarios and test the impact of changes in revenue or cash expenses. Real-time financial models also help the CFO report to investors and avoid sudden liquidity surprises. Managing cash runway effectively is not only about having enough cash but about ensuring stability while still funding initiatives that position the company for long-term profitability.
Cash runway as a survival tool
Cash runway goes beyond a simple formula. For startup founders and business owners, it’s a survival metric that underpins financial health and strategic decision-making. Tracking cash flow, updating financial models, and maintaining visibility into the company’s cash balance allows founders to anticipate challenges and avoid overspending.
A company with a good cash runway also has optionality — the ability to invest in new initiatives, experiment with pricing or pursue expansion when opportunities arise.
Managing cash runway can bring up emotions for early stage operators. Read more about that in our founder’s framework for emotional fitness and managing emotions at work article.