cashflow
Runway
Months you can keep operating at current burn before running out of cash.
Definition
Runway is bank balance divided by net monthly burn rate. $300K in the bank with $25K/month burn = 12 months runway. The benchmark for service businesses: 6 months is minimum survival cushion, 12+ months is comfortable, 18+ months means you can take strategic bets without panic. Runway below 9 months should trigger expense scrutiny; below 6 months should trigger emergency action: cut costs, raise capital, or accelerate collections.
Static runway versus dynamic runway
Static runway divides today's bank balance by today's net burn and produces a single number, like '14 months'. It is wrong by construction because both the numerator and denominator change every month. Dynamic runway projects month by month: starting cash, plus expected revenue, minus expected expenses, equals ending cash. Run this for 18 months and find the month ending cash goes negative. That month minus today equals true runway. Build it in Google Sheets or use a tool like Runway, Pry, or Mosaic. The difference between static and dynamic runway can be 3 to 6 months in either direction, which is the difference between sleeping at night and not.
Including expected inflows realistically
The biggest forecasting error in runway models is assuming pipeline closes at booked rates and on stated timelines. US enterprise sales cycles routinely slip 30 to 90 days. SMB pipeline closes at 20 to 35 percent of stated forecast. Apply discount factors: 90 percent for signed contracts not yet invoiced, 60 percent for verbal commits, 30 percent for late-stage proposals, 10 percent for early pipeline. Model two runway scenarios: 'committed' (only signed contracts) and 'plan' (probability-weighted pipeline). If committed runway is under 6 months and plan runway is under 12 months, you are in fundraising territory.
Runway benchmarks by company stage
Pre-seed and seed US startups should aim for 18 to 24 months runway after each round - this is what Tier 1 VCs expect to see. Series A targets 18 months. Bootstrapped service businesses should hold 6 to 12 months of operating expenses as cash reserve, treated as runway in a worst-case scenario where revenue drops 50 percent. Solo consultants and freelancers should hold 3 to 6 months of personal living expenses plus business OpEx. Going below these floors triggers different stress: VC-backed founders feel it at 9 months (fundraising lead time), bootstrappers feel it at 4 months.
What to do at runway thresholds
Above 12 months: invest aggressively in growth, hiring, and experiments. 9 to 12 months: maintain trajectory, but stop adding new fixed costs and re-forecast monthly. 6 to 9 months: yellow zone, begin scenario planning for both fundraise and cost cuts, freeze hiring. 3 to 6 months: red zone, execute cost reductions (SaaS, marketing, contractors), accelerate collections, talk to lenders or investors. Under 3 months: emergency, layoffs likely, restructure debt, consider asset sale or strategic acquisition conversations. Founders who wait until under 3 months to act usually run out of time to land a fundraise.
FAQ
Should runway use cash on hand only, or include credit lines?
Use cash on hand for primary runway calculation. A separate 'extended runway' figure can include undrawn credit lines, but treat that as a backstop, not as primary. Credit lines can be reduced or revoked by the bank when financial covenants slip, exactly when you need them most. SBA loans take 60 to 120 days to close, so they are not available cash. The conservative rule: primary runway = liquid cash (checking, savings, T-bills). Extended runway can include credit lines if covenants are healthy.
How often should I update runway?
Weekly is best practice once you are below 12 months. Monthly is sufficient above 18 months. The weekly cadence matters because revenue and expense surprises compound; a 10K miss in week 1 becomes a 40K miss in month 1 if it indicates a pattern. Connect QuickBooks or Xero to a simple Google Sheets dashboard or use Pry or Runway to automate it. Daily updates are over-engineering for most businesses.
How does runway change with revenue growth?
If revenue is growing faster than expenses, runway extends month by month even with positive burn. This is called negative burn convergence: you are spending more than you make today, but the gap is closing. The classic SaaS path: 18 months runway at start, hit 24 months by month 12 as revenue ramps. Model this explicitly. A flat-burn assumption against a growing-revenue assumption is misleading; project both lines and let runway emerge from the gap.
Does owner draw count against runway?
Yes. Any cash leaving the bank account reduces runway, regardless of whether you label it salary, draw, distribution, or expense reimbursement. US S-Corp founders who pay themselves W-2 salary plus distributions sometimes underestimate burn because they look at the P&L (which shows only salary) instead of cash outflows (which include distributions). Always work from bank statements, not the P&L, when computing burn and runway.
What runway do US VCs expect after a round?
Pre-seed: 18 to 24 months. Seed: 18 to 24 months. Series A: 18 months. Series B onward: 12 to 18 months, depending on milestone gates. Top-tier US VCs push founders to raise enough for 24 months and assume the next round takes 9 to 12 months from kickoff to wire, leaving 12 to 15 months of operating headroom. Raising less to minimize dilution often backfires because founders then live in constant fundraising mode.
In your business
- →Update weekly
- →Below 9 months: pause non-essential hires and discretionary spend
- →Below 6 months: urgent action - cut costs, factor receivables, or raise capital