Runway Math Founders Get Wrong: Burn Isn't a Single Number
We thought we had 18 months of cash. We actually had 11. A short guide to the spreadsheet mistakes I made so you can skip them.
At my first company, I told our board we had 18 months of runway. Our cash balance was $1.44 million and our monthly burn was $80,000. The division is simple.
Eleven months later we were scrambling for a bridge loan. The maths was not wrong. The model was.
Mistake 1: Treating burn as constant
Our $80,000 burn was last month's number. But we had two hires starting in month two, a price increase from our cloud provider in month four, and an annual software contract renewal in month six. None of those appeared in the simple division.
Burn is not a number. It is a curve, and for most growing startups that curve slopes upward. Our real average burn over the next year was closer to $115,000.
Mistake 2: Counting revenue we did not have
We had a few large deals in the pipeline, and I quietly assumed two would close. One did, three months late. The other never closed at all.
Rule I follow now: runway is calculated with zero new revenue. Pipeline is upside, not a plan. If a deal closes, celebrate and extend the runway then.
Mistake 3: Forgetting timing
Even revenue we had arrived unevenly. Several customers paid quarterly, and one paid 60 days after invoice. Some months we were cash-positive on paper and still short on actual money in the bank.
A monthly profit and loss view hid this completely. A cash flow view, month by month, showed it instantly.
Mistake 4: Runway to zero
The most dangerous number on the sheet was the month our cash hit zero. Nobody raises money in their final month. Fundraising takes four to six months, and investors can smell desperation.
The number that matters is months until you must start raising. For us, that was runway minus six. Our 18 months was really 12, and in reality, after the curve and the late deals, closer to five.
The sheet I use now
It has four sections, and it fits on one screen:
- Committed costs by month, including hires already signed and contracts already renewed.
- Contracted revenue only, with real expected payment dates.
- Monthly cash balance, starting from today's bank figure, not from accounting.
- Two dates in red: the month we must start fundraising, and the month we hit three months of cash left.
I update it every two weeks. It takes about 30 minutes.
Runway is not how long the money lasts. It is how long you have to make your next decision calmly.
If your runway is a single division on a whiteboard, spend an hour this week turning it into a curve. The answer will probably be shorter than you hope, and that is far better to learn now.
Cover: Photo by Jakub Żerdzicki on Unsplash.
