In the world of startups and growing businesses, managing finances is paramount. Two critical metrics that help assess a company's financial health and sustainability are Burn Rate and Runway. This calculator helps you understand your company's runway, which is directly derived from its burn rate.
What is Burn Rate?
Burn Rate refers to the rate at which a company, especially a startup, expends its available cash reserves to finance overhead before generating positive cash flow. It's essentially how much money your company is "burning" through each month. There are two main types of burn rate:
Gross Burn Rate: This is the total amount of money a company spends in a given period, typically a month. It includes all operating expenses like salaries, rent, marketing, software subscriptions, etc.
Net Burn Rate: This is a more refined metric. It's calculated by subtracting any revenue generated by the company from its gross burn rate.
Net Burn Rate = Gross Burn Rate – Revenue
For example, if a company spends $20,000 in a month (Gross Burn) and brings in $5,000 in revenue, its Net Burn Rate is $15,000.
For the purpose of calculating runway, we typically use the Net Burn Rate. However, if your business has no revenue yet, your Gross Burn Rate will serve as your Net Burn Rate.
What is Runway?
Runway is the amount of time a company can continue operating before it runs out of cash, assuming its current spending and revenue trends continue. It's usually expressed in months. A longer runway gives a company more time to achieve profitability, secure further funding, or reach other key milestones.
The Calculation
The formula for calculating your runway is straightforward:
Runway (in Months) = Total Cash in Bank / Net Monthly Burn Rate
In this calculator, we've simplified the input to focus on your Total Monthly Expenses (which effectively represents your Gross Burn Rate if you have no revenue, or a key component of your Net Burn Rate) and your Cash in Bank. If you have revenue, you would ideally calculate your Net Burn Rate first and then use that figure in the denominator. For simplicity in this tool, we are asking for total expenses as a proxy for monthly outflow.
Why is this Important?
Financial Planning: It helps businesses plan their spending and anticipate future cash needs.
Investor Relations: Investors want to know how long their investment will last and what milestones the company can achieve with the current capital.
Strategic Decision-Making: Understanding runway informs decisions about hiring, product development, marketing campaigns, and fundraising efforts.
Operational Efficiency: Monitoring burn rate can highlight areas where costs can be reduced, thereby extending the runway.
Regularly monitoring your burn rate and runway is crucial for the survival and growth of any early-stage business.
function calculateBurnRate() {
var monthlyExpenses = parseFloat(document.getElementById("monthlyExpenses").value);
var cashInBank = parseFloat(document.getElementById("cashInBank").value);
var resultDiv = document.getElementById("result");
var resultValue = document.getElementById("result-value");
var resultUnit = document.getElementById("result-unit");
if (isNaN(monthlyExpenses) || isNaN(cashInBank)) {
resultValue.innerText = "Invalid Input";
resultUnit.innerText = "";
resultDiv.style.backgroundColor = "#ffeeba"; // Warning yellow
resultDiv.style.borderColor = "#ffc107";
return;
}
if (monthlyExpenses <= 0) {
resultValue.innerText = "∞";
resultUnit.innerText = "Months (No Burn)";
resultDiv.style.backgroundColor = "#d4edda"; // Success green
resultDiv.style.borderColor = "#28a745";
return;
}
if (cashInBank < 0) {
resultValue.innerText = "Negative Cash";
resultUnit.innerText = "";
resultDiv.style.backgroundColor = "#f8d7da"; // Danger red
resultDiv.style.borderColor = "#dc3545";
return;
}
var runway = cashInBank / monthlyExpenses;
resultValue.innerText = runway.toFixed(2); // Display with two decimal places
resultUnit.innerText = "Months";
resultDiv.style.backgroundColor = "#d4edda"; // Success green
resultDiv.style.borderColor = "#28a745";
}