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Runway

Finance

What is Runway?

Runway refers to the duration a startup can continue to operate before it needs additional financing or reaches a positive cash flow. It's the timeline within which a startup must either become self-sustaining or secure further investment to avoid running out of cash.

How is Runway used?

This metric is used for financial planning; it informs decisions on cost-cutting, fundraising, and growth spending. Startups use it to gauge when to raise the next funding round and ensure they avoid a cash crisis by adjusting their Burn Rate.

How to calculate Runway

Cash Reserves / Monthly Burn Rate

To calculate your startup's Runway, divide your cash reserves by your monthly Burn Rate. For example, if your startup has £50,000 in cash reserves and a monthly Burn Rate of £10,000, your Runway is 5 months.

Best Practices

Regularly monitor Burn Rate and cash balance; adjust operational costs and align growth spending to increase Runway as necessary. Startups should use a healthy margin of safety and aim for a longer Runway to accommodate unexpected expenses or delays in securing more funding.

Common Misconceptions

A common misconception is that a longer Runway is better. While a long Runway is a cushion, it may might suggest underinvestment in growth. This could lead to being out-competed by other market players, so balance growth spending with cautious financial planning.

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FAQs

What are the main drivers of Runway?
  • Cash balance
  • Burn Rate

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