"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.
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:
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.