Net burn vs gross burn
Net burn rate is the actual monthly decline in a company's cash balance — it already accounts for whatever revenue is coming in. Gross burn rate is total monthly spending before subtracting revenue, so it shows the full scale of operating costs regardless of how much revenue offsets them. Gross burn is always equal to or greater than net burn, since net burn nets out whatever revenue is collected.
Net burn is calculated from the change in cash balance over a period — the difference between starting and ending cash, divided by months elapsed. Take a company with $500,000 in starting cash, $380,000 in ending cash, and 6 months elapsed: net burn is ($500,000 − $380,000) ÷ 6 = $20,000 per month. With $10,000 in average monthly revenue, gross burn adds that back: $20,000 + $10,000 = $30,000 per month — the true scale of monthly operating spend before revenue is considered.
From burn rate to runway
Runway is the number of months a business can continue operating at its current net spending rate before its cash balance is exhausted — current cash balance divided by monthly burn rate. Take a separate illustrative company with $400,000 in cash and a monthly burn rate of $25,000: runway is $400,000 ÷ $25,000 = 16 months, or 16 ÷ 12 ≈ 1.33 years.
- Net burn = (starting cash − ending cash) ÷ months elapsed
- Gross burn = net burn + average monthly revenue
- Runway (months) = current cash balance ÷ monthly burn rate ($400,000 ÷ $25,000 = 16 months)
What counts as 'comfortable' runway
Startup and venture-finance convention commonly treats 18 or more months of runway as comfortable, since it typically allows time to reach the next milestone or complete a financing process before cash runs critically low. This is a widely cited rule of thumb, not a guaranteed or universal threshold — the right runway target depends on the specific business, its financing environment, and its milestones.
| Runway | Common characterization |
|---|---|
| 18+ months | Healthy — commonly cited as a comfortable buffer to reach milestones or complete a financing process. |
| 9–18 months | Watch — enough time to plan, but financing or cost decisions typically need attention soon. |
| Under 9 months | Critical — cash reaches zero soon at the current spending pace unless burn is reduced or new cash comes in. |
Where runway estimates go wrong
Both burn rate and runway assume spending and revenue continue at the same rates that produced the historical figures — actual results can differ if spending or revenue changes. Common errors include using an unusually high- or low-spend month as the baseline, including one-time cash inflows or outflows (like a financing round) in the balances without adjusting for their non-recurring nature, and treating the runway figure as a fixed deadline rather than an estimate that should be recalculated as the underlying numbers change.
Questions fréquentes
What is the difference between net burn and gross burn?
Net burn is the actual monthly decline in cash after revenue is factored in; gross burn is total monthly spending before subtracting revenue. With $500,000 falling to $380,000 over 6 months and $10,000 in average monthly revenue, net burn is $20,000 and gross burn is $30,000.
How is cash runway calculated?
Divide the current cash balance by the monthly burn rate. With $400,000 in cash and a $25,000 monthly burn rate, runway is $400,000 ÷ $25,000 = 16 months, or about 1.33 years.
How much runway should a startup have?
Eighteen or more months is a commonly cited comfortable buffer in startup and venture financing, since it generally allows time to reach a milestone or complete a financing process. This is a widely used convention rather than a guaranteed requirement, and the right target varies by company and financing environment.
Does runway account for future changes in spending or revenue?
A basic runway calculation uses a single monthly burn rate and doesn't model changing revenue or spending over time. If revenue is expected to grow or costs are expected to change materially, runway should be recalculated periodically using an updated burn rate rather than relying on one static estimate.
Références
- Y Combinator. Startup Library — managing runway and burn rate. ycombinator.com.
- U.S. Small Business Administration. Manage your finances — cash flow guidance. sba.gov.
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance. 13th ed. McGraw-Hill Education, 2020.