How do I track burn rate and runway for my startup?
Burn rate is how much cash your startup spends each month. Runway is how many months you can operate before the money runs out. Both metrics require accurate financial records to calculate correctly.
Gross burn rate is your total monthly cash outflow. Add up everything you spend in a month including payroll, software, rent, contractors, and operating expenses. Net burn rate accounts for revenue, so if you spend $50,000 but bring in $20,000, your net burn is $30,000. Early-stage startups with minimal revenue often focus on gross burn since that’s what drains the bank account.
To calculate runway, divide your current cash balance by your monthly burn rate. If you have $300,000 in the bank and burn $30,000 per month, your runway is 10 months. This assumes burn rate stays constant, which it rarely does, so treat runway as an estimate rather than a guarantee.
Tracking these numbers requires closing your books monthly. You need reconciled bank accounts, categorized expenses, and accurate cash balances. If your books are two months behind or transactions are miscategorized, your burn rate calculation will be wrong. Tech startups often move fast and let bookkeeping slide, but that creates blind spots exactly when visibility matters most.
Pull the same report each month to track trends. Your accounting software can generate a cash flow statement or profit and loss that shows total expenses. Watch for spikes that indicate one-time costs versus baseline operating expenses. A month with a big equipment purchase or annual software renewal will skew your average if you don’t account for it.
Many founders check their bank balance and guess at burn rate. That works until you forget about the quarterly tax payment hitting next week or the annual insurance premium due in two months. Proper tracking means forecasting known upcoming expenses, not just looking backward at what you already spent.
Investors will ask about burn rate and runway during due diligence. Having clean monthly financials and a clear answer builds credibility. Scrambling to reconstruct numbers from bank statements signals that financial management isn’t a priority.
The mechanics aren’t complicated. Run a small business bookkeeping service that closes your books by the 15th of each month. Pull your cash balance and total expenses. Calculate burn and runway. Review trends over time. The discipline of doing this consistently matters more than sophisticated analysis.
If your burn rate is climbing or runway is shrinking faster than expected, you’ll catch it early when you have options. Waiting until the bank account looks scary means you’re reacting instead of planning.
The Merrimack Valley's Trusted Accounting Partner
The Next Step:
A 15-Minute Call
Tell us about your business and what you're dealing with. We'll listen, ask a few questions, and give you a straightforward quote.
More Questions
Should I start over with new books or fix my existing records?
In most cases, fixing your existing records is the better choice. Starting over sounds appealing but doesn't erase tax obligations or the need for historical documentation. The right answer depends on how far behind you are and what's actually wrong.
Read answerHow do I separate personal and business finances?
Open a dedicated business bank account and use it exclusively for business transactions. Get a business credit card, pay yourself through regular documented transfers, and track everything through accounting software from day one.
Read answerHow do I account for R&D tax credits?
Track qualifying R&D expenses throughout the year in separate accounts, then record the credit as a reduction of income tax expense when claimed. Startups can offset payroll taxes instead of income taxes.
Read answerHow do I track food costs and inventory for my restaurant?
Tracking food costs requires weekly inventory counts, categorized purchase tracking, and proper accounting integration. Calculate cost of goods sold using beginning inventory plus purchases minus ending inventory, then divide by sales to get your food cost percentage.
Read answerHow do I handle depreciation for rental properties?
Residential rental properties depreciate over 27.5 years using the straight-line method. You depreciate only the building, not the land, so you need to allocate your purchase price between them and track each property's depreciation schedule separately.
Read answerWhat financial reports should a healthcare practice review?
Healthcare practices should review standard financial statements plus industry-specific reports like accounts receivable aging by payer, collections rate, and revenue by service type. The AR aging report matters most because insurance reimbursement drives cash flow.
Read answer
