Runway

Runway is the amount of time a company can continue operating at its current Burn Rate before running out of cash. It's one of the most critical metrics for startups and growth companies, as it determines how long they have to achieve profitability, secure additional funding, or reach significant milestones. Runway planning is essential for survival and strategic decision-making.

Runway is calculated using the formula:

Runway = Available Cash ÷ Monthly Burn Rate

For example, if a company has $500,000 in cash and a monthly burn rate of $50,000, their runway is 10 months.

Runway analysis considers different cash scenarios:

Current Runway: Based on existing cash balances and current burn rate Extended Runway: Including committed funding or accounts receivable Scenario Planning: Adjusted for potential revenue growth or cost reductions

Key factors that affect runway include:

1. Revenue Growth: Increasing Monthly Recurring Revenue (MRR) reduces net burn and extends runway
2. Cost Management: Reducing expenses directly extends available runway
3. Funding Events: New investment dramatically extends operational timeline
4. Seasonal Variations: Cash flow fluctuations impact runway calculations
5. One-time Expenses: Large expenditures can significantly impact runway projections

Runway planning is critical for several business decisions:

Fundraising Timing: Most investors prefer companies with 12-18 months of runway remaining Hiring Decisions: Team expansion must balance growth needs with runway preservation Product Development: Feature prioritization should consider development costs and timeline Market Expansion: Geographic or vertical expansion requires runway for investment payback

Different runway thresholds trigger specific actions:

• 18+ months: Growth mode with aggressive hiring and marketing spend
• 12-18 months: Begin fundraising process while maintaining growth trajectory
• 6-12 months: Focus on extending runway through revenue growth or cost reduction
• Under 6 months: Crisis mode requiring immediate action to secure funding or achieve profitability

SaaS companies often extend runway by optimizing Customer Acquisition Cost (CAC) and improving Customer Lifetime Value (LTV) ratios. E-commerce businesses may extend runway by improving inventory turnover and Gross Margin.

Smart runway management involves creating multiple scenarios and contingency plans. Companies should model both optimistic and conservative cases, ensuring they have sufficient time to execute strategic pivots or secure additional capital before reaching critical cash levels.