Runway (Business)
BusinessGlossary term
Definition
The amount of time a company can continue operating before it runs out of cash, calculated by dividing current cash reserves by the monthly burn rate. Runway is one of the most important metrics for startups because it determines how much time the company has to achieve milestones, reach profitability, or secure additional funding. Most investors recommend maintaining at least 12 to 18 months of runway to provide enough time to execute plans and adapt to challenges.
Related terms
- Burn RateThe rate at which a company spends its cash reserves, typically measured on a monthly basis, before it begins generating positive cash flow from operations. Burn rate is a critical metric for startups and early-stage companies that are investing heavily in growth before reaching profitability. Understanding your burn rate is essential for determining how long your company can survive on its current funding, which directly informs your runway.
- Venture CapitalA form of private equity financing provided by investment firms or funds to early-stage or high-growth startups that demonstrate significant potential for rapid expansion and large returns. In exchange for funding, venture capitalists typically receive equity ownership and often take an active role in guiding the company's strategy and governance. Venture capital is a high-risk, high-reward investment that has fueled the growth of many major technology companies.
- Cash Flow Statement (Business)A financial statement that tracks the actual movement of cash in and out of a business over a specific period, organized into operating, investing, and financing activities. Unlike the income statement, which includes non-cash items like depreciation, the cash flow statement shows whether a company is generating enough actual cash to fund operations and growth. Positive cash flow is essential for business survival, even for companies that appear profitable on paper.
- BootstrappingThe process of building and growing a business using personal savings and revenue generated by the business itself, without relying on external investors or significant debt financing. Bootstrapped founders maintain full ownership and control of their company, though growth may be slower compared to venture-backed competitors. This approach forces entrepreneurs to be resourceful, prioritize profitability early, and make careful spending decisions.
Get advice that uses your real numbers
Warren reads your accounts and explains what terms like this mean for your plan. Free to start, no credit card required.