How to calculate how long your cash will last
Runway is the amount of time your startup can continue operating before it runs out of cash. The formula is straightforward: Runway (months) = Cash Balance / Monthly Net Burn Rate. If you have 300,000 pounds in the bank and your net burn is 25,000 per month, your runway is 12 months.
The standard advice is 18 to 24 months after each funding round. This gives you enough time to hit milestones, show progress, and raise the next round before you run out. If you are bootstrapped, the answer depends on your personal risk tolerance and how quickly you can reach profitability. At minimum, never let your runway drop below 6 months without a clear plan to either raise money or cut costs. Below 6 months, you are in survival mode, and that mindset makes it nearly impossible to make good long-term decisions.
There are two sides: increase revenue or decrease costs. On the revenue side: close deals faster, raise prices, move customers to annual prepayment (instant cash injection). On the cost side: pause hiring, renegotiate contracts, cut tools you are not using, and switch from paid marketing to organic channels. The most impactful move is usually reducing headcount, but consider it a last resort. Before cutting people, cut everything else. Every tool subscription, every nice-to-have expense, every conference budget. A 10% reduction in non-salary costs can add months to your runway.
Fundraising takes longer than you expect. The average Series A process takes 3 to 6 months from first meeting to money in the bank. If you start fundraising with 8 months of runway, you might close with only 2 months left, which puts you in a terrible negotiating position. Start the process when you have at least 9 to 12 months of runway. This gives you the luxury of being selective and negotiating from a position of strength. Desperation is the worst position to raise from because investors can smell it and will offer worse terms.
Paul Graham coined these terms. If your revenue is growing and your expenses are relatively flat, will you become profitable before running out of cash? If yes, you are default alive. If no, you are default dead. Default alive companies have options. They can choose to raise money or not. Default dead companies must raise money or die. Every founder should know which category they fall into and check monthly. The shift from default dead to default alive is one of the most important transitions a startup can make. It changes every decision you make.