The Cash Runway Formula
Cash runway is the number of months your business can operate before running out of cash — assuming you keep spending at your current rate. It's the most important number for any founder or business owner to know, yet most don't track it at all.
The formula is simple:
Net Burn Rate = Monthly Operating Expenses − Monthly Revenue
That's it. Divide what you have by what you're spending each month. But — and this is where most people go wrong — "spending" isn't just your payroll and rent. It needs to account for every dollar going out, minus every dollar coming in, averaged over a meaningful period.
Quick reality check: If you don't know your current monthly net burn rate right now, you're flying blind. Runway is only useful when you know it accurately — not when you guess. CashScope pulls your actual transaction data from QuickBooks to calculate this automatically, so you're always working from real numbers.
What Is Monthly Burn Rate — and How Do You Calculate It?
Monthly burn rate is the net amount of cash your business spends each month. It's calculated from your profit and loss, not your cash balance.
Gross Burn is your total monthly cash outflows — payroll, rent, software subscriptions, cost of goods sold, marketing, everything.
Net Burn subtracts your monthly revenue. If you make $15,000/month and spend $40,000/month, your net burn is $25,000/month. That's the number that matters for runway.
To get a meaningful burn rate, use a 3-month trailing average rather than a single month. Most businesses have seasonal dips and spikes — a one-month snapshot gives you a distorted picture.
| Metric | Definition | Example |
|---|---|---|
| Gross Burn | Total monthly cash outflows | $40,000/mo |
| Monthly Revenue | Cash received in the month | $15,000/mo |
| Net Burn Rate | Gross Burn − Revenue | $25,000/mo |
| Cash Balance | Available cash in your accounts | $150,000 |
| Cash Runway | Cash Balance ÷ Net Burn | 6.0 months |
A Real Example with Real Numbers
Let's walk through a service business — a digital marketing agency with 6 employees. Here's their 3-month average:
Marketing Agency — Monthly Burn Calculation
Cash Runway
Six months of runway. Not comfortable — but not a crisis. This founder knows they need to either grow revenue or reduce burn within the next 4 months to maintain a 9+ month buffer (the minimum recommended for service businesses).
Now let's say this same agency lands a $25,000/month retainer that kicks in next month. Their burn drops to $10,000/month, and runway extends to 9 months — without touching their cash balance. That's the power of accurate runway visibility.
Runway Benchmarks by Business Stage
Not all runway is created equal. "6 months" means very different things depending on your business model and growth stage:
| Stage | Comfortable | Caution | Critical |
|---|---|---|---|
| Early-stage startup (pre-revenue) | 18+ months | 12–18 months | Under 12 months |
| Early-stage startup (post-revenue) | 15+ months | 9–15 months | Under 9 months |
| Established SMB (service) | 9+ months | 6–9 months | Under 6 months |
| Established SMB (product) | 12+ months | 6–12 months | Under 6 months |
| Growth-stage company | 12+ months | 6–12 months | Under 6 months |
Why "comfortable" is a moving target: If you're actively fundraising, add 6 months to your target — investors want to see that you can make it to the next round without pressure-selling. If you're in a seasonal business, look at your worst quarter (typically Q1 for most service businesses) and make sure runway covers that dip before it arrives.
The 5 Most Common Cash Runway Calculation Mistakes
Most founders get the formula right in theory — then make these mistakes in practice:
1. Using gross burn instead of net burn
Including revenue in the denominator makes runway look longer than it is. Always subtract revenue to get net burn.
2. Using last month's burn instead of a 3-month average
One month is a spike or a dip. Use a trailing 3-month average to normalize seasonality and one-time expenses.
3. Counting receivables as cash
Invoice sent ≠ cash received. Only count money that's actually in your account. Unpaid invoices are a future problem, not current runway.
4. Ignoring variable and seasonal expenses
Annual subscriptions, tax payments, and seasonal hiring all hit cash flow hard. Model these as monthly averages, not as if they don't exist.
5. Not updating when revenue or costs change
Runway is a moving target. A new contract or a major expense changes it immediately. If you're not recalculating monthly at minimum, your runway number is stale.
How to Track Runway Automatically with QuickBooks
Manually updating a runway calculation every month is error-prone and easy to skip. The better approach is to connect your QuickBooks account and let CashScope calculate runway automatically from your real transaction data.
CashScope pulls in:
- Actual cash balance from your QuickBooks bank accounts — not an accounting balance, but what's actually sitting in your accounts
- 3-month trailing net burn rate computed from your P&L, smoothed to remove one-time anomalies
- Upcoming known cash outflows like scheduled payments and payroll runs
The result is a runway number that's always current — not a spreadsheet you updated once and forgot about.
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