How do I calculate my burn rate, and how much runway should a startup have?

Add up your net cash out for the last three complete months and divide by three, and that's your burn. Divide your cash on hand by that burn and you get runway, in months. How much runway is enough depends on your plan, so there's no single right number.

Here's the math with made-up numbers, so you can follow along with a pencil. These figures are made up.

Net cash out for a month is the money that left your accounts minus the money that came in. Say it was $14,000 in December, $18,000 in January and $16,000 in February. Add those up and you get $48,000. Divide by three and your burn is $16,000 a month.

I use three months because one month can fool you. A big invoice or a one-off purchase can make a single month look scary or great, and averaging smooths that out. I also leave the current month out until it's finished. If it's March in this example, March doesn't count yet, because half a month of data would drag the number around.

Now runway. Take your cash on hand and divide it by burn. With $104,000 in the bank and $16,000 of burn, that's 6.5 months, which lands in late September. I like seeing both the months and the date, because "6.5 months" is easy to shrug at and "late September" is harder to ignore.

Credit card balances are excluded from cash on hand because they are debt.

How much runway you should have depends on what you're trying to get done and how long it might take, whether that's a launch, first revenue or a fundraise. I'd rather not hand you a number and call it a rule. A decent gut check is whether a slow quarter would make you panic. If it would, you want more cushion. The colors in ShoestringCFO give you a quick read on where you stand: six months or more is green, three to six is yellow, and under three is red. The 6.5 months in the example would show green. Two months would show red.

I built ShoestringCFO because I did a lot of fractional CFO and COO work for startups and kept running into the same problem. Founders' finances were misunderstood or wrong, and it was very difficult to track just the important things. On top of that, there was no budget for expensive financial tools. The dashboard does this exact math for you. CSV import is the only way your bank activity gets in today, and automatic bank sync is coming. You can read more on the free startup runway dashboard page.

To try it by hand first, grab your last three complete months of bank activity, work out net cash out for each, and divide your cash on hand by the average.