Runway and Burn Rate: How Long Will Your Cash Last?
If your business is spending more than it brings in, two numbers matter more than almost anything else: how fast the cash is going out (burn rate) and how long it will last (runway). They’re common in startup circles, but they apply just as much to a new local business, a company going through a slow season, or an owner who has just taken on a big expansion.
This guide explains both terms in plain English and walks through an illustrative example for a new fitness studio.
What Is Burn Rate?
Burn rate is how much cash your business loses each month.
There are two versions:
- Gross burn is your total monthly cash spending: rent, wages, software, loan payments, and everything else.
- Net burn is cash out minus cash in. If you spend $30,000 a month and bring in $18,000, your net burn is $12,000.
Net burn = Monthly cash out − Monthly cash in
Net burn is usually the number people mean when they say “burn rate,” because it’s what drains your bank account.
What Is Runway?
Runway is how many months you can keep going at your current burn rate before the cash runs out.
Runway (months) = Cash in the bank ÷ Net burn
If you have $60,000 in the bank and a net burn of $12,000, your runway is five months.
Worked Example: A New Fitness Studio
A fitness studio opened three months ago. The owner has $90,000 left from savings and a small business loan.
| Monthly cash out | Amount |
|---|---|
| Rent | $6,500 |
| Coach wages | $11,000 |
| Owner’s pay | $3,500 |
| Equipment loan payment | $1,200 |
| Software, insurance, utilities | $1,800 |
| Marketing | $2,000 |
| Gross burn | $26,000 |
Membership income is $14,000 a month and growing.
- Net burn = $26,000 − $14,000 = $12,000
- Runway = $90,000 ÷ $12,000 = 7.5 months
That sounds fine, but runway assumes nothing changes. The owner tests a few scenarios:
| Scenario | Net burn | Runway |
|---|---|---|
| Current | $12,000 | 7.5 months |
| Membership grows $1,000 a month | Falls by $1,000 each month | Cash lasts; break-even in month 12 with about $24,000 left |
| A coach leaves and isn’t replaced | $8,000 | 11.3 months |
| Summer slump cuts income to $10,000 | $16,000 | 5.6 months |
The growth scenario shows the real goal. Runway isn’t just about surviving. It’s the time you have to reach break-even. If membership grows by $1,000 a month, income catches up with the $26,000 of spending after 12 months. Over those 12 months, the studio burns $11,000, then $10,000, and so on down to zero, a total of $66,000. That’s less than the $90,000 in the bank, with about $24,000 to spare.
Cash Runway Calculator
Cash Runway Calculator
Expenses are held flat. Growth compounds monthly on revenue. Results are estimates for planning only.
How to Extend Your Runway
- Cut gross burn. Review every recurring cost. Pause anything that doesn’t directly bring in or keep customers. Knowing your fixed vs variable costs makes this faster.
- Raise prices or add offers. More contribution margin per customer cuts burn without needing more customers.
- Collect cash sooner. Annual memberships, prepaid packages, and deposits bring cash forward. See cash flow vs profit.
- Line up funding before you need it. Lenders and investors are more willing when you have months of runway, not weeks.
- Set trigger points. Decide now what you’ll cut if runway drops below six months, and what you’ll cut at three.
Rules of Thumb
- Recalculate burn and runway every month using actual bank figures, not your budget.
- Keep at least six months of runway when you can, and start fixing things well before you reach three.
- Don’t count money you haven’t received yet, such as a loan “in progress” or a big unpaid invoice.
- Track the trend. A runway that shrinks each month is a warning even if the number still looks big.
A budget shows what you plan to spend. Burn and runway show what’s actually happening.
Frequently Asked Questions
What is the difference between gross burn and net burn?
Gross burn is total monthly cash spending. Net burn is spending minus cash coming in. A business that spends $26,000 and brings in $14,000 has a gross burn of $26,000 and a net burn of $12,000.
How do you calculate runway?
Divide cash in the bank by monthly net burn. With $90,000 in the bank and a $12,000 net burn, runway is 7.5 months.
How many months of runway should a small business have?
Many founders aim for 12 to 18 months when raising money and treat anything under six months as a reason to act. For an established small business with a temporary loss, a few months may be fine if there’s a clear path back to profit.
Does burn rate include loan payments?
Yes, if you’re measuring cash. Loan payments, including principal, use cash, so they belong in gross burn even though only the interest counts as an expense on the income statement.
Is burn rate only for startups?
No. Any business that’s spending more cash than it brings in has a burn rate, including seasonal businesses in their quiet months and established firms going through a rough patch.
