Cash Runway Formula: How to Calculate Net Burn and Zero-Cash Date

Use this sequence:

1. Start with cash you can spend, meaning bank and short-term treasury balances. Exclude restricted cash, customer deposits you owe back and any amount you'd need to keep for covenants.
2. Calculate net burn for the last three months: cash out (everything, including payroll, taxes and debt service) minus cash in (customer receipts and other income).
3. Divide the usable cash by average monthly net burn.
4. Rebuild the answer using forward-looking numbers: known hires, price changes, annual renewals and debt payments.

Gross burn is total monthly cash spending. Net burn is gross burn minus receipts. Use net burn for runway and gross burn when you want to see how much revenue you'd need to break even.

Say your company has $1,200,000 in usable cash. In this example, gross burn over the last three months averaged $180,000 and receipts averaged $60,000, so net burn is $120,000 and trailing runway is ten months.

Now stress it. In this example, you've signed offers for two engineers that add $30,000 a month from month three, and a large customer has moved from net 30 to net 60 terms, which pushes about $40,000 of receipts out by a month. In this example, net burn rises to $150,000 from month three onward, and the late payment takes another $40,000 out of your cushion. The realistic runway is closer to eight months than ten.

The gap between the trailing and forward-looking number is the point. Investors and lenders will ask for the forward version, and it's the one that tells you when to start a raise.

Fundraising usually takes longer than founders plan, so start well before the last few months of cash, and set your own trigger date by working backward from how long your last raise took.

Burn multiple relates spending to growth: net burn divided by net new ARR. The a16z burn multiple bands for companies with $0-$10M ARR are 1.1 for good, 1.6 for ok and 3.8 for bad¹. Say you burned $1.5 million and added $1 million of net new ARR, your burn multiple is 1.5. Compare yours using our burn multiple calculator and read the longer discussion in burn multiple benchmarks and runway forecasting.

Rank levers by how fast they work and how reversible they are:

• Collect faster: invoice on time, offer a small discount for early payment or move to annual prepay. This is quick and improves cash without touching costs.
• Delay discretionary spend: pause hiring, renegotiate annual software renewals and cut unused seats. Effect depends on how much is truly discretionary.
• Raise prices or change terms: slower to show up but permanent.
• Cut headcount or programs: the biggest effect and the hardest to reverse.
• Add financing: a line of credit or venture debt can extend runway, but it adds fixed payments, so model them.

For SaaS companies, benchmark medians for operating expenses as a share of revenue can show where you're out of line: median sales and marketing was 37 percent, R&D 34 percent and G&A 24 percent². Use them as a prompt for questions, not as targets.

Update it monthly and store each version so you can see whether your forecast was too optimistic. Tie the calculation to a weekly 13-week cash forecast for the near term, and add scenarios for slower collections and a delayed round. If rates or lender terms change, the sensitivity of your runway to interest costs is covered in managing runway through rate cycles.

Run three cases rather than one: a base case from your plan, a downside where collections slow and a planned hire slips in late, and an upside where a large deal closes early. The gap between base and downside shows how much room you have. If the downside case gets you to a short runway while the base case looks comfortable, fix the assumptions that separate them first, usually collections timing and hiring dates.

Finally, agree on a trigger with your board or co-founders: for example, if forward runway drops below a chosen number of months, you start the raise or the cost plan that same week. Deciding in advance removes the argument when the pressure is on.