Runway and Burn Rate: The Two Numbers Founders Should Always Know

Ellie closed her seed round in Edinburgh with £600,000 in the bank and a four-person team building software for logistics firms. “A year of money,” she told her board. “Plenty of time.” Then she hired two engineers, lost a pilot customer and paid an annual software bill she had forgotten about. Five months later the year had become seven months, and raising again would take at least six. Runway and burn rate are the two numbers that would have warned her early. Every founder should know both without looking them up.

Term	Meaning	Ellie’s figure
Gross burn	Total cash going out each month	£75,000
Revenue	Cash coming in each month	£25,000
Net burn	Gross burn minus cash in	£50,000
Runway	Cash divided by net burn	12 months
After two hires	Net burn rises to £63,000	About 9.5 months

Gross burn and net burn

Burn rate is how fast a company spends cash. There are two versions, and mixing them up causes trouble. Gross burn is everything that leaves the bank in a month: salaries, rent, software, marketing, tax, loan repayments. Net burn is gross burn minus the cash that comes in from customers. Ellie’s company spent £75,000 a month and collected £25,000, so her net burn was £50,000. Net burn tells you how quickly the bank balance is actually shrinking. Gross burn tells you how big the problem would be if revenue suddenly dried up, which is exactly what happens when a large customer leaves or pays late. Track both, every month.

Calculating runway

Runway is how many months you can keep going before the cash runs out, if nothing changes. The basic formula is simple: cash in the bank divided by net monthly burn. Ellie’s £600,000 divided by £50,000 gave 12 months. But “if nothing changes” is doing a lot of work. When she added two engineers at about £6,500 a month each, including employer costs, net burn rose to £63,000 and runway fell to around 9.5 months overnight. Always calculate runway on your planned spending, not last month’s. Build it from a proper cash flow forecast, so hires, price changes and big one-off payments show up before they happen.

Measure cash, not profit

Your management accounts can show a loss of £40,000 while £60,000 actually leaves the bank, or the other way round. Annual subscriptions paid up front, quarterly VAT payments, corporation tax, deposits, and customers who pay sixty days late all move cash in ways that monthly profit smooths out. Runway is about cash, so calculate it from bank balances and a cash forecast, not the profit and loss account. A customer who prepays a year of subscriptions improves your cash but not your profit; a big customer who has not paid yet does the opposite. Our guide to reading company accounts explains why the two differ.

How much runway is enough?

Most investors and experienced founders aim for 18 to 24 months of runway after a raise, and treat anything under twelve as a warning. The reason is that fundraising itself eats runway: it often takes six months or more from first meeting to money in the bank, and you need to show progress before you start. Money has also become harder to find. The British Business Bank found equity deals for smaller UK businesses fell by 17% in 2025, with seed deals down 27%, and investment in early 2026 fell sharply again. So start raising with nine to twelve months left. Our guide to common venture capital mistakes explains why raising late is so costly.

Default alive or default dead

Investor Paul Graham popularised a simple question: if you raise no more money and your current growth and costs continue, will you reach profit before the cash runs out? If yes, you are default alive. If not, you are default dead, and your survival depends on someone else deciding to invest. Many founders do not know which they are. Work it out with realistic growth, not your best month repeated forever. Ellie was default dead with about eight months to spare. Knowing that changed her priorities: she paused one hire and focused on converting pilots into paying customers. Improving your profit margins moves you towards default alive faster than almost anything else.

Extending runway without raising

Start by splitting costs into committed ones, such as salaries, leases and contracts, and discretionary ones, like marketing tests, travel and nice-to-have software. Cut the discretionary ones first, and cut early: a 10% saving made with twelve months left is worth far more than a 30% cut made with three. Then look at cash in. Invoice promptly, chase late payers using the habits in our credit control guide, and offer annual plans paid up front. If you do qualifying research and development, R&D tax relief can bring meaningful cash back, and loss-making R&D-intensive companies can get extra support. Our guide to trading through a downturn has more practical ideas.

Think in milestones, not just months

Months of runway only matter because of what you can achieve in them. A more useful question is: how much cash will it take to reach the next milestone that makes the company worth more? That might be £30,000 of monthly recurring revenue, a regulatory approval, or a product launch with ten paying customers. Ellie worked out that converting her three pilots into paid contracts would cost roughly £280,000 of net burn. With £600,000 in the bank that looked comfortable; with at least six months of fundraising on top, it did not. Plan each raise around reaching one clear milestone with money to spare, and judge every big spending decision by whether it gets you there faster.

When runway gets short, duties change

This is the part many startup founders do not know. When a company is insolvent, or likely to become insolvent, UK directors must start giving proper weight to the interests of creditors, not just shareholders. The Supreme Court confirmed this in the Sequana case in 2022. If directors carry on trading when they know, or should know, there is no reasonable prospect of avoiding insolvent liquidation or administration, they can be made personally liable for wrongful trading. That does not mean stopping at the first bad month. It means holding regular board meetings, minuting decisions, keeping a live cash forecast, and taking advice from an accountant or insolvency practitioner early if the numbers stop adding up.

Recalculate, and share the numbers

Runway is not a number you work out once after a raise. Recalculate it every month, and immediately after anything significant: a new hire, a lost customer, a price change or a big contract. Watch the three-month trend rather than a single month, which can be distorted by one late payment. Share the number with your board and investors in every update, as covered in our guide to mistakes with angel investors. And be honest with your team. People cope far better with a clear plan to extend runway than with rumours, and the best ideas for saving cash often come from them.

What Ellie does now

Ellie now reviews gross burn, net burn and runway on the first working day of every month, from the bank balance and a rolling forecast. She delayed one hire, moved two customers to annual plans paid up front and started fundraising with ten months of runway left instead of four. The round took five months and closed on better terms than she expected. Runway and burn rate are not complicated. They are simply the numbers that tell you how much time you have, and time is the one thing a startup cannot buy back.

Frequently asked questions

What is the difference between gross burn and net burn?

Gross burn is all the cash you spend each month. Net burn is gross burn minus the cash that comes in from customers.

How do I calculate startup runway?

Divide the cash in the bank by your net monthly burn. Use planned spending, including new hires, not last month’s figures.

How much runway should a startup have?

Most aim for 18 to 24 months after raising, and start the next raise with nine to twelve months of cash left.

What does default alive mean?

A company that will reach profit before its cash runs out, assuming current growth and costs continue with no new funding.

How can I extend runway without raising money?

Cut discretionary costs early, collect cash faster, offer annual plans paid up front and claim any R&D tax relief you qualify for.

What must directors do when cash is running out?

Consider creditors’ interests, hold and minute regular board meetings, keep a live cash forecast and take professional advice early.

This article is general information, not financial, tax or legal advice. The figures are illustrative. If your company may be unable to pay its debts, take advice from an accountant or licensed insolvency practitioner straight away.