What is Cash Runway?
Cash Runway measures how long your money will last at the current cash burn rate.
How to calculate Cash Runway?
($) cash balance / ($) monthly burn rate = (months) Cash Runway
For example, your starting balance is $180,000 . Your net burn rate is $12,000 per month. The following is the calculation of your runway.
$180,000 / $12,000 = 15 months
Calculating burn rate and runway for your company is a critical exercise that every founder needs to understand. Failure to do so could lead to the inability for the company to meet its cash obligations, such as processing payroll for employees. In the event that the company’s runway is coming to an end sooner rather than later, management needs to consider either raising additional capital, increasing revenue through more aggressive sales or cutting unnecessary expenses to extend the runway further.
Monitoring cash runway in isolation may paralyze your operations. Make sure you keep an eye on your sales pipeline as well as look into reducing costs.
How should you visualize Current Accounts Payable?