The founder's guide to runway math

Ask three founders how much runway they have and you'll get three different calculations — and at least one of them will be flattering. Runway is the single number that determines when you need to raise, when you can hire, and how aggressively you can spend. It deserves more rigour than "bank balance divided by last month's spend."

Three numbers, not one

Gross burn is everything going out: salaries, rent, software, vendors, taxes. It answers "what does it cost to run this company for a month?" It's the number to watch when revenue is volatile, because it doesn't flatter you.

Net burn is gross burn minus money actually coming in — collections, not invoices raised. This is the number that drains the bank account. If your receivables are slow, net burn can be dramatically worse than your P&L suggests.

Runway is cash in bank divided by net burn — but only if you use the right version of both. The bank balance should exclude money that isn't really yours: GST collected, TDS payable, salary deductions awaiting deposit, and any debt repayment due inside the window.

The three classic mistakes

1. Counting booked revenue as cash. An invoice with 60-day terms is not money. If your collections cycle is slow, model runway on collections, not bookings.
2. Using an average month instead of the next months. Annual contracts, festival-season marketing, appraisal cycles, and tax quarters make some months far heavier. A 12-month forward cash flow beats a trailing average.
3. Ignoring committed-but-unpaid costs. Notice periods, annual software renewals, and statutory dues are already spent — they just haven't left the account yet.

What investors pressure-test

In diligence, investors rarely accept the headline runway number. They rebuild it: monthly bank statements, collections matched against revenue, statutory liabilities checked for currency. If their rebuilt number is shorter than yours, the conversation shifts from valuation to survival — a much worse negotiation to be in.

The defence is boring and effective: a monthly close that reconciles to the bank, a rolling 12-month cash flow forecast, and a runway figure that updates with actuals every month. That's the core of what a Virtual CFO cadence produces.

A simple monthly habit

• Close the books by a fixed date each month.
• Update the cash flow forecast with actuals.
• Recompute runway on collections, net of statutory dues.
• Review gross burn, net burn, and runway in one founder meeting.

Do this for three months and the panic-raise disappears. You'll see the wall coming two quarters out — exactly when you still have the leverage to do something about it.