Burn rate measures how quickly a company consumes cash. Runway estimates how many months available cash could support operations at a given net burn rate. These are planning tools, not predictions.
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Know the difference between gross and net burnCalculate runway using available cashTest three scenarios before raisingFunding size is not simply burn multiplied by monthsUse a rolling forecast to manage decisionsFrequently asked questionsKnow the difference between gross and net burn
Gross burn is total cash paid out over a period. Net burn is cash paid out minus operating cash received. A startup with RM120,000 of monthly cash payments and RM35,000 of collections has an illustrative net burn of RM85,000 a month. Timing differences can cause either figure to change.
Calculate runway using available cash
For a simple snapshot, divide unrestricted available cash by monthly net burn, when net burn is positive. With RM850,000 available and RM85,000 net burn, illustrative runway is 10 months. The actual cash forecast should also include large annual payments, taxes, capital expenditure and delayed receivables.
Test three scenarios before raising
Model a base case using realistic customer and cost assumptions; a downside case with slower conversion or collections; and a controlled-growth case with delayed hiring. Compare the date of minimum cash under each scenario. This often changes the amount and timing of the next raise.
Practical output to request
Ask for a dated, editable file; named owners for each assumption; and a review meeting that identifies decisions rather than merely presenting charts.
Funding size is not simply burn multiplied by months
The financing amount may also need to cover upfront investments, working capital, transaction costs and a prudent buffer. Forecast how milestones affect revenue and costs. Do not claim a precise optimal funding amount without examining the actual business plan.
Use a rolling forecast to manage decisions
A 13-week forecast helps with short-term payment pressure, while a rolling 12–24 month model supports strategic decisions. Reconcile actual results to the model regularly, especially after significant hires or pricing changes.
Frequently asked questions
What if our startup is profitable but still short of cash?
Profit and cash flow differ because invoices, inventory and payments occur at different times. Monitor receivables and payment commitments separately.
What if net burn is zero or negative?
The simple cash-divided-by-burn formula is not meaningful in that situation. Use a scenario-based cash forecast instead.