# Runway

_Also known as: cash runway_

**Category:** Finance
**URL:** https://skiporship.com/glossary/runway
**Last updated:** 2026-08-08

## Definition

Runway is the number of months a company can continue operating before it runs out of cash, calculated by dividing cash reserves by net monthly burn.

## What it means in practice

Runway converts your bank balance into the unit that actually matters: time. It sets the deadline for every strategic decision, because reaching profitability, raising a round, or proving a metric all have to happen inside it.

The conventional target is 18 months, and the reason is practical rather than arbitrary. Raising a round typically takes three to six months from first conversation to money in the bank, and you need to be negotiating from strength rather than desperation. Starting a raise with six months left means fundraising while your position weakens by the week.

Runway calculated from a simple average is often misleading, because burn rarely stays flat. Planned hires, annual software renewals and marketing pushes all create step changes. A month-by-month cash projection reveals the real date you run out, which is frequently earlier than the headline figure suggests.

## Formula

```
Runway (months) = cash in bank ÷ net monthly burn
```

Project month by month rather than dividing by an average — upcoming hires and annual renewals move the date forward.

## Worked example

A company with £600,000 in the bank and growing revenue.

- Current net burn: £40,000/month → headline runway of 15 months.
- But two planned hires add £15,000/month from month three.
- And revenue is growing roughly £4,000/month, reducing net burn over time.
- Modelled month by month, cash actually runs out at around month 12.

**Takeaway:** The simple division said 15 months; the month-by-month model said 12. That three-month gap is the difference between a comfortable raise and a rushed one.

## Common mistakes

- Dividing by current burn while ignoring planned hires and annual renewals.
- Starting a fundraise with under six months left, which materially weakens terms.
- Assuming revenue growth will continue on trend and reduce burn on schedule.
- Forgetting that receivables and payment terms delay when cash actually arrives.

## Related tool

[Runway calculator](https://skiporship.com/calculators/runway)

## Related terms

- [Burn Rate](https://skiporship.com/glossary/burn-rate) — Burn rate is the speed at which a company spends its cash reserves, usually expressed per month. Net burn is spending minus revenue; gross burn is total spending regardless of income.
- [Unit Economics](https://skiporship.com/glossary/unit-economics) — Unit economics are the direct revenues and costs associated with a single unit of your business — usually one customer — showing whether each one is profitable before overheads.
- [Bootstrapping](https://skiporship.com/glossary/bootstrapping) — Bootstrapping is building a company using revenue and personal funds rather than external investment, retaining full ownership and control at the cost of slower growth.
- [Break-Even Point](https://skiporship.com/glossary/break-even-point) — The break-even point is the level of sales at which total revenue exactly covers total costs, producing neither profit nor loss — the threshold a business must clear to become self-sustaining.

## FAQ

**How much runway should a startup have?**

Eighteen months is the common target. Fundraising typically takes three to six months, so this leaves room to raise from a position of strength rather than under pressure.

**How do you extend runway?**

Either reduce net burn or increase revenue. Cutting costs works faster but can damage the progress investors want to see, so the strongest extension usually comes from revenue that reduces net burn without slowing the metrics that matter.

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