Runway and Burn: Startup Words, Every-Business Math
Runway and Burn: Startup Words, Every-Business Math
"Burn rate" and "runway" sound like venture-startup jargon, but they name something every business with a bank account has: the speed cash is depleting, and how long until it's gone. A lawn company in its first winter, an agency that lost its anchor client, a shop funding its own launch — all of them live on runway whether they use the word or not. The owners who compute it make calm, early moves. The ones who don't make the same moves later, at panic prices.
The two numbers
Burn rate = net cash out per month. Not profit — cash (this pillar's oldest distinction). Total dollars out minus total dollars in, from the bank's perspective, averaged over the last 2–3 months. A business collecting $18,000 and paying out $23,000 burns $5,000/month, whatever its accrual P&L claims.
Runway = cash on hand ÷ burn rate. $30,000 in the bank at $5,000/month burn: 6 months of runway. That's the whole formula. The discipline is in using honest inputs: real collections (not hoped-for sales), all real outflows (loan principal, your draw, the quarterly tax bill smoothed into monthly terms).
Two refinements make it decision-grade:
- Gross vs. net burn. Net burn (above) nets revenue against costs. Gross burn is total monthly outflow if revenue went to zero — the paranoid number. A business with $23K out / $18K in has $5K net burn but $23K gross burn: healthy-ish at current revenue, dead in 6 weeks if the revenue stops. Know both; the gap between them is your revenue dependence, quantified.
- Runway at the trend, not the average. If burn is accelerating (each month slightly worse), dividing by last quarter's average flatters you. Use the recent slope when things are moving.
The uncomfortable honesty rules
Rule one: runway shrinks faster than the math says, because the math assumes today's burn while the future holds the insurance renewal, the equipment failure, the slow-paying month. Treat computed runway as the ceiling, and plan against 75–80% of it.
Rule two: act at 6 months, not at 2. Every fix — raising prices, cutting the nut, chasing receivables, lining up credit, finding new work — takes months to land in the bank. The moves available with 6 months of runway are strategy; the same moves with 6 weeks are triage, on worse terms, with a lender who can smell it. (Credit especially: the line of credit is obtainable before you need it — the cash-reserves lesson makes this point sharply.)
Rule three: runway isn't only a crisis metric. Deliberate negative months — a seasonal trough you planned for, a launch you're funding, an equipment year — are fine when they're priced: "this costs 3 months of runway, we'll have 7 left at the bottom, and here's the refill path" is an owner's sentence. Burning without knowing the price is the amateur version of the same decision.
Numbered: compute and respond
- Compute net burn from bank reality: last 3 months of (all cash out − all cash in) ÷ 3. Include your draw and debt payments. If positive-cash-flow: congratulations, your "runway" is infinite at current conditions — compute gross burn anyway (rule of thumb for reserves lives there).
- Divide cash by burn. Write the months on the scorecard. This number, updated monthly, is the loudest single indicator of urgency in the business.
- Under ~6 months and not by design? Start two motions this week — one revenue-side (reprice, collect, sell) and one cost-side (the −30% cut list from the P&L lesson, executed to whatever depth the math requires). Pairs work; single motions rarely move burn enough.
- Under 3 months: full triage mode. 13-week forecast weekly, the crunch payment-order from the pay-smart lesson, every discretionary dollar frozen, and honest conversations early — with the landlord, the lender, and yourself.
- Burning by design? Write the sentence: cost in months, floor level, refill path. Review it monthly against actuals. Planned burn that stops matching its plan is unplanned burn — the label doesn't protect you, the review does.