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.
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.
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.
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.
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.