How should a startup track burn rate and runway?
Burn rate is how much cash your startup spends each month. Runway is how many months you can keep operating at that rate before running out of money. Both numbers come from your actual financials, not projections or rough estimates, which means your books need to be accurate for either metric to mean anything.
There are two versions of burn rate worth understanding. Gross burn rate is your total monthly spending regardless of income. Net burn rate subtracts any revenue you’re bringing in. If you spend $40,000 a month and earn $15,000, your gross burn is $40,000 and your net burn is $25,000. Pre-revenue startups only need to think about gross burn. Once revenue starts flowing in, net burn becomes the number that actually matters.
Runway is straightforward math. Take your cash on hand and divide it by your monthly net burn rate. If you have $300,000 in the bank and your net burn is $25,000, you have 12 months of runway. This number should be recalculated every month because both your spending and revenue shift over time.
The practical way to track this starts with pulling a profit and loss statement each month. Total expenses give you gross burn. Subtract total revenue for net burn. Then check your actual bank balance and divide by net burn for runway. QuickBooks Online makes this easy to pull if it’s configured properly with clean categories and reconciled accounts.
Use a rolling three-month average for burn rate instead of just looking at last month. One-time costs like annual software renewals, a conference, or a new equipment purchase can spike a single month and make your runway look much shorter than it really is. Averaging gives you a more honest picture of your ongoing spending.
For tech startups specifically, the biggest burn categories tend to be payroll and contractor costs, cloud hosting and infrastructure, software subscriptions, and marketing. Breaking expenses into these buckets helps you see where money is going and where you have room to cut if runway gets uncomfortably short. Lumping everything together into general categories makes it nearly impossible to act on the information.
A few things commonly throw off burn rate calculations. Credit card charges that sit unrecorded for weeks. Annual subscriptions that hit all at once instead of being recognized monthly. Owner draws or founder payments that get miscategorized. Any of these can distort your numbers and give you either false confidence or unnecessary panic. Working with a small business bookkeeping service that keeps your records current prevents these issues from compounding.
Most founders only look at runway when fundraising or when cash feels tight. It should be a monthly habit. Knowing you have 14 months of runway feels different from knowing you have 5. That difference determines whether you have time to experiment with growth or need to immediately cut costs and start conversations with investors. You can only make that call if you trust the numbers, and you can only trust the numbers if your books are accurate and up to date.
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More Questions
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