Cash is the oxygen of a startup. No matter how strong your product, how fast your growth, or how impressive your metrics, running out of cash ends the story. Burn rate and runway are the metrics that tell you how much oxygen remains and how fast you are consuming it. Every SaaS finance leader needs to calculate these accurately, communicate them clearly, and manage them proactively.

This guide covers the mechanics of burn rate and runway calculation, the nuances that trip up finance teams, and the frameworks for managing cash in a disciplined way.

Understanding Burn Rate

Burn rate measures how quickly a company spends cash in excess of what it generates. There are two versions, and you need both.

Gross Burn Rate

Gross burn is the total amount of cash the company spends each month, regardless of revenue.

Gross Burn Rate = Total Monthly Cash Operating Expenses + Capital Expenditures

This number answers a simple question: “If all revenue stopped tomorrow, how much cash would we consume each month?” It is a worst-case planning number.

Net Burn Rate

Net burn accounts for revenue, measuring the actual cash deficit each month.

Net Burn Rate = Total Monthly Cash Outflows - Total Monthly Cash Inflows

If a company spends $800K per month and collects $500K in revenue, the net burn rate is $300K. This is the number most people refer to when they say “burn rate” without qualification.

Important Nuances

Cash versus accrual basis. Burn rate should be calculated on a cash basis, not an accrual basis. If you invoice customers annually upfront, your cash inflows in the billing month are much higher than in subsequent months. Use actual bank account movements, not GAAP revenue and expenses.

Non-recurring items. One-time expenses like security deposits, equipment purchases, or legal settlements distort monthly burn. Calculate both an “as-reported” burn that includes everything and a “normalized” burn that excludes true one-time items. The normalized number is more useful for runway calculations.

Timing of payroll. Many companies pay employees semi-monthly or bi-weekly. Months with three pay periods will show higher burn. Normalize for this when analyzing trends.

Calculating Cash Runway

Runway is the number of months the company can continue operating at its current burn rate before running out of cash.

Cash Runway (months) = Current Cash Balance / Monthly Net Burn Rate

If the company has $6M in cash and burns $300K per month net, the runway is 20 months.

Static vs. Dynamic Runway

The formula above produces a static runway estimate—it assumes burn rate stays constant. In reality, burn rate changes as the company hires, revenue grows, and spending patterns evolve.

A dynamic runway model projects monthly cash balances forward based on expected changes:

  1. Start with the current cash balance.
  2. For each future month, project cash inflows (revenue collections, expected funding) and cash outflows (payroll, vendors, rent, etc.).
  3. Identify the month where the projected cash balance reaches zero.

This approach is more work but far more accurate, especially for companies in periods of rapid change.

Minimum Runway Thresholds

As a general guideline:

  • Above 18 months: Comfortable. The company can make strategic investments and plan a fundraise on its own timeline.
  • 12-18 months: Adequate but requires attention. Fundraising preparations should begin if external capital is part of the plan.
  • 6-12 months: Urgent. The company should be actively fundraising or implementing cost reduction measures.
  • Below 6 months: Critical. Immediate action is required to either secure funding or reduce burn to extend survival.

A Framework for Burn Rate Management

Step 1: Establish a Cash Forecast

Build a rolling 13-week cash flow forecast that tracks expected inflows and outflows at the weekly level. This is the standard tool for near-term cash management and provides early warning of potential shortfalls.

Extend the forecast to 12-18 months on a monthly basis to support strategic planning. Update both forecasts weekly.

Step 2: Identify Fixed vs. Variable Costs

Categorize all expenses as fixed (costs that do not change with revenue, such as rent, base salaries, and core software subscriptions) and variable (costs that scale with activity, such as cloud infrastructure, commissions, and payment processing fees).

Understanding this split is critical for scenario planning. Fixed costs define the minimum burn floor—the level below which you cannot reduce spending without structural changes like layoffs or office closures.

Step 3: Build Scenario Models

Develop at least three scenarios:

Base case: Current trajectory continues. Revenue grows as planned, spending follows the approved budget, and no major changes occur.

Upside case: Revenue exceeds plan by 15-20%. This scenario helps you plan how to deploy excess cash effectively if things go well.

Downside case: Revenue comes in 20-30% below plan. This is the scenario that matters most for runway management. Identify the specific cost reductions you would implement and when you would trigger them.

Pre-defining downside actions prevents the panicked, unstructured cost-cutting that destroys company morale and often cuts too deep in the wrong areas.

Step 4: Define Trigger Points

Establish specific conditions that trigger action:

  • If runway drops below 15 months, begin fundraising preparations.
  • If runway drops below 12 months, slow non-critical hiring.
  • If runway drops below 9 months, implement the downside scenario cost reductions.
  • If runway drops below 6 months, execute emergency measures.

Having these triggers defined in advance removes emotion from the decision process and ensures timely action.

Step 5: Monitor and Communicate

Report burn rate and runway to leadership and the board monthly. Include both the current snapshot and the trend. A company with 14 months of runway that was at 18 months three months ago is in a very different situation than one that has been stable at 14 months.

Extending Runway: The Levers

When runway gets tight, finance teams have several levers available. The key is pulling them in the right order.

Revenue Acceleration

The fastest way to extend runway is to bring in more cash. Offer discounts for annual prepayment. Accelerate deals that are close to signing. Consider short-term promotional pricing to pull forward demand. These tactics sacrifice some long-term economics for near-term cash, which is a reasonable trade when survival is at stake.

Discretionary Spending Cuts

Reduce or eliminate spending that is not directly tied to revenue generation or product delivery. Common targets include conferences and travel, non-essential software subscriptions, office perks, and consulting engagements. These cuts are usually low-impact and can be implemented quickly.

Hiring Freezes

Unfilled positions represent future cost that has not yet been committed. Freezing open requisitions is one of the easiest ways to slow burn rate increases. Prioritize only the most critical roles.

Vendor Renegotiation

Contact major vendors to request extended payment terms, reduced rates, or deferred payments. Many vendors, particularly cloud providers and landlords, would rather renegotiate than lose a customer. Be transparent about your situation—most B2B vendors understand startup dynamics.

Headcount Reductions

This is the most impactful lever and the hardest to implement. If reductions are necessary, do them once, cut deep enough, and provide affected employees with generous severance and support. Multiple rounds of small layoffs are far more damaging to morale and productivity than a single well-executed restructuring.

Bridge Financing

If the company is between fundraising rounds, existing investors may provide bridge financing to extend runway. This typically comes in the form of convertible notes or SAFEs. Be aware that bridge financing often comes with terms that reflect the company’s weakened negotiating position.

Burn Rate in Board Communications

When presenting burn rate and runway to your board, provide:

  1. Current cash position and the date it was measured.
  2. Trailing three-month average net burn rate to smooth monthly fluctuations.
  3. Calculated runway based on both current burn and projected burn.
  4. Year-over-year burn rate change to show the trend.
  5. Key assumptions behind the forward projection (revenue growth rate, planned hires, major expenditures).
  6. Scenario analysis showing runway under base, upside, and downside cases.

This level of detail demonstrates financial discipline and gives the board the information they need to provide effective guidance.

Cash Culture

The best SaaS finance teams build a culture where everyone in the company understands the relationship between spending and runway. Share runway updates at all-hands meetings. Make it clear that thoughtful spending is everyone’s responsibility, not just the finance team’s. When the entire organization understands that cash is finite and precious, spending decisions naturally become more disciplined.

Burn rate and runway are not just metrics—they are the vital signs of a startup’s survival. Track them rigorously, communicate them transparently, and act on them decisively.