Cash & working capital
Cash burn and runway
Net burn is how much more cash a business spends than it takes in each month; runway is how many months its cash would last at that rate.
Net burn = Cash out − Cash in (per month); Runway = Cash on hand ÷ Net burn
Worked example
| Cash on hand | $1,200,000 |
| Cash in per month | $300,000 |
| Cash out per month | $400,000 |
Net burn $100,000 a month → runway of 12 months
Why it matters
Runway is the deadline for every decision that costs money: hiring, fundraising, cutting. Knowing it monthly, not quarterly, is the difference between choosing and being forced.
Common mistakes
Where it misleads
Using gross burn (all spending) when revenue offsets part of it, or net burn when revenue is uncertain.
Taking one unusual month as the rate instead of an average of recent months.
Ignoring known future changes, such as planned hires, that move the burn.
Related terms
Keep reading
- Budget vs actualBudget vs actual compares what happened in a period with what was planned, line by line, to show where the business is ahead of or behind its plan.
- Days sales outstanding (DSO)Days sales outstanding is the average number of days it takes a company to collect payment after a sale on credit.
- Days payable outstanding (DPO)Days payable outstanding is the average number of days a company takes to pay its suppliers after receiving their bills.
Stop calculating it by hand.
Dear CFO keeps your statements, forecasts and metrics current from the systems you already run.