What is Burn Rate & Runway?
Burn rate is the rate at which a company is spending its cash reserves. Monthly burn rate = total monthly expenses minus total monthly revenue. Runway is how many months of cash a company has left at its current burn rate: Runway = Cash Balance ÷ Monthly Burn Rate.
For startups, burn rate is the clock ticking toward either profitability or the next fundraise. A company with $3M in the bank burning $250K/month has 12 months of runway. Best practice is to maintain at least 12-18 months of runway.
Burn multiple — burn rate divided by net new ARR — measures how efficiently you're converting spending into growth. A burn multiple below 2x is efficient. Above 3x is concerning. Above 5x means you're burning cash without proportional growth.
Why It Matters
Burn rate determines survival. Too many startups run out of cash because they don't track burn rate rigorously or they overestimate future revenue. The burn multiple is increasingly important for investors in 2026.
Frequently Asked Questions
What is burn rate?
Burn rate is how much cash a company spends each month beyond what it earns. If you spend $500K/month and earn $200K/month, your burn rate is $300K/month.
How much runway should a startup have?
12-18 months minimum. Less than 6 months is a red alert. Start fundraising when you have 9-12 months left.
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Richard Ewing is a Product Economist and AI Capital Auditor. He helps companies translate technical complexity into financial clarity.
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