It usually takes about 4 years to turn a startup into a profitable business. We've worked with more than enough companies to see how many things can go sideways in that time. Running out of cash is by far the most common problem.
Since early-stage startups usually work on negative cash flow, they must know how much they can spend each month and how long that money will last before having to raise additional capital. That's precisely why you need an up-to-date cash runway calculation on hand at any given time – to see how long you can operate before your cash burn rate gets the better of you, leaving you with that dreaded $0 balance in your bank account.
Let's figure out how to calculate cash runway together in three easy steps. Stick around until the end to find out how to do a financial analysis that dives even deeper than the ratio between your current cash balance and burn rate.
Let’s first go through the basics of calculating runway manually. The cash runway formula is simple enough:
While your beginning cash balance is pretty self-explanatory, the second half of the equation may spark some questions. The burn rate is the rate at which you use (or burn) your cash over a specific timeframe. You can use either of the options for calculating the burn rate from the ones below, depending on how conservative a number you want:
Now, if you like to keep things simple for yourself and automate the process instead of doing the math, here are the three steps you need to take.
Start by downloading our free cash runway calculator template. Our team of financial experts made sure it's accurate and dependable, so all you have to do is fill out your data. Fill out the form below to get free forever access.
Bonus: Contact us or check our website for more free templates that will take away the headaches of creating your financial plans manually.
When you download the calculator, you'll see that STEP 1 (on the left, highlighted in blue) requires you to input your current financial data.
Let us explain what it all means:
Phew, we got that out of the way. Now just sit back and admire your company's precise cash runway calculation. Let's explain what you see here.
The right side of the template (STEP 2, highlighted in blue) is entirely automated – no need to change anything there.
The first thing that stands out is your runway (and runway post-launch, if you haven't released your product yet). Simple enough. Below that is your monthly burn rate, i.e., the money you need to have on hand to keep the startup machine running smoothly.
On the right of the runway calculation, you'll see our comments about what to focus on at the moment based on your result. Whenever things stop looking optimistic, you can click on the link that pops up. It will take you to an article guide that helps with your current problems.
We also included some handy graphs to illustrate how much runway you have. Here you can see the expected monthly cash balance and the dynamics of your inflows vs outflows. Visuals tend to speak louder than numbers and we wanted to make things as clear for you as possible. Once your earnings start to outgrow your spending, you're on the right track to sustainable profitability – yay!
The question remains, though – what's a healthy startup funding runway? Some sources say 12-18 months of runway is enough. Others estimate companies spend 18-24 months between funding stages. We would suggest (if you want to stay on the safe side) aiming for as much as 36 months of runway, but don't fret if you don't hit that number of months – the estimates above show that even lower results seem to be doing just fine for many startups.
Not convinced whether you even need to calculate cash runway? Let us explain why it's crucial for the sustainability and growth of your startup:
Calculating your runway is cool and all, but it's not really enough information to manage your finances wisely. If you want to eliminate guesswork from your strategy entirely, dive deeper with financial planning and analysis software.
Fuelfinance gives you the three small business financial statements, but that's just the beginning of its capabilities. This tool also handles things like cash flow, financial projections, plan/actual and unit economics, all to give you the peace of mind necessary to focus on creative decision-making. It combines sophisticated software, clean and precise, cloud-hosted spreadsheets and a team of financial experts helping you move in the right direction. With our QuickBooks integration, even data input can be automated, minimizing the time needed to manage your finances to just one hour weekly.
Fuelfinance gives you access to an all-in-one dashboard displaying all your key metrics in one view. If you don't know which are "key" in your case, from the whirlwind of agency metrics, don't worry – we give you suggestions on what KPIs to track based on your startup's financial model, business type etc.
Calculating a startup runway doesn't have to be complicated. We know facing the music and seeing a short predicted lifespan in the calculator can be scary. But just like all aspects of financial forecasting for startups and established companies alike, this information is only here to help, so you don't encounter a brutally unpleasant surprise in the form of all your cash reserves disappearing.
If you enjoyed how easy it was to calculate runway with the Fuelfinance calculator, just imagine what else we can do for you. Our unique combination of financial software and experts helps you stay on top of your money with enough time and peace of mind to focus on making wise, data-driven decisions that move your business forward. Schedule a free demo call to see how we can help.
The runway period is the total time a company can continue operating before running out of cash. It's essentially the "lifespan" of the business given its current inflows and outflows.
To calculate your current runway, you need to know your total cash on hand and your monthly burn rate (the amount of money you're spending each month). Divide your total cash by your monthly burn rate to determine how many months your business can operate before it needs more funding.
The cash runway formula is:
Runway Period (months) = Total Cash on Hand/ Monthly Burn Rate
For example, if your business has $100,000 in cash and you spend $10,000 per month, your runway period is:
100,000 / 10,000 = 10 months
This means you have 10 months of runway before you need to secure additional funds.
