For first-time founders there’s a lot to stay on top of, especially when it comes to your startup’s finances. Two of the most important (and most misunderstood) are cash burn and runway. Getting to grips with both can mean the difference between scaling sustainably and running out of money before you’ve had the chance to find traction. Luckily, we’ve put together a straightforward guide to help you understand the difference and how to stay in control of both as you grow.

What is cash burn?

Cash burn refers to the rate at which your startup spends money, typically measured by subtracting your cash inflows (revenue) from your total outflows (expenses) each month. In the early stages, it’s normal for startups to operate at a loss while building their product and acquiring customers, so burning cash isn’t inherently a bad thing. The key is whether you’re doing it strategically.

There are a few important types of cash burn to understand:

• Gross burn represents your total monthly expenses without considering any income.

• Net burn accounts for revenue and shows a more accurate picture of how much cash you’re actually losing each month.

• Some founders also track bank burn, which looks at the change in your bank balance over time. While useful, this metric can be misleading if you’ve recently raised funding or made large one-off purchases.

Ultimately, cash burn is about managing your runway and making sure your spending supports sustainable growth and not just spending for spending’s sake.

What is your runway?

Your runway tells you how long your startup can survive at your current burn rate. To calculate it, divide your available cash by your monthly net burn.

For example, if you have £180,000 in the bank and you’re burning through £30,000 each month, you’ve got six months of runway.

But runway is more than just a formula. It gives you a clear view of what’s ahead, helping you plan when to raise funds and make smart choices about hiring, marketing, or product development. A healthy runway gives you breathing room, giving you space to grow and experiment while a short one puts you under pressure to make reactive choices.

How much runway is enough?

It depends on where you are in your journey, your business model, and the market you’re in. As a general guide, most startups aim for 12 to 18 months of runway. When fundraising gets tougher, some stretch that to 24 or even 36 months. The goal is to give yourself enough time to reach your next big milestone, whether that’s finding product-market fit, landing key customers, or getting ready for your next funding round, without constantly feeling the pressure.

Runway also needs to account for growth. As your team expands and you spend more on acquisition, your monthly burn will rise. A static view isn’t enough, your financial model should forecast changing costs and revenue, and show how these shifts affect your runway month by month.

Why burn rate matters more than ever

Burning cash isn’t inherently bad. Many successful startups grow by spending boldly in the right areas.

The problem comes when your burn rate runs ahead without a clear plan. If your spending grows but doesn’t bring in more customers, better retention, or faster product progress, you’re simply reducing your runway without increasing your chances of success.

That’s where metrics like burn multiple come in handy. Burn multiple looks at how much you’re spending to generate each unit of recurring revenue — typically annual recurring revenue (ARR). For example, a burn multiple of 1.5 means you’re spending £1.50 to create £1 of new ARR. The lower the number, the more efficient your growth.

Ways to extend your startup runway

There are three main ways to stretch your runway: cut costs, grow revenue, or raise capital. Each comes with its own trade-offs. Cutting costs can give you more time but might slow your growth. Increasing revenue strengthens your position but usually takes longer. Raising capital boosts your runway, but only if you get the timing right and your numbers look solid.

The real secret is having clear visibility. Build a live financial model that updates your cash position in real time. Include things like late payments, tax bills, and planned hires. Check your burn rate every month to catch warning signs early.

What this means for your startup

Managing cash burn and runway isn’t all about penny-pinching, it’s about buying the time you need to make smart, long-term decisions. Understanding them gives you control, clarity, and confidence as you grow. Whether you're planning your next hire, launching a new feature, or prepping for a fundraise, keeping a close eye on your burn and runway ensures you're making decisions with eyes wide open. This ensures you’re better placed to make decisions on your own terms and keep the momentum of growing your startup.