Cash Flow
What Is Cash Runway?
Cash runway is the number of months a business can keep operating at its current burn rate before running out of cash, calculated as cash on hand divided by monthly net burn. A brand with $480K in the bank burning $120K a month has 4.0 months of runway, which is the danger zone. Venture-funded brands target 12 to 18 months and working-capital-funded brands target 6 to 12 months, measured against available cash after near-term committed outflows rather than the headline bank balance.
Cash runway is the number of months you can keep operating at your current burn rate before you run out of cash. It's the single most important survival metric for any business operating without unlimited capital, which is basically every business.
How cash runway is calculated
Cash runway (in months) = cash on hand divided by monthly net burn.
Net burn = monthly cash outflow minus monthly cash inflow. Use a rolling 3-month average to smooth out seasonal noise.
A worked example
A DTC brand has $480K in the bank. The last 3 months show $620K in monthly revenue (after refunds) and $740K in monthly total cash outflow. Net burn = $120K per month. Runway = $480K divided by $120K = 4.0 months. Danger zone. Action required this quarter, not next.
What's a healthy runway?
- Venture-funded brands: 12 to 18 months target
- Working-capital-funded brands: 6 to 12 months target
- Mature profitable brands: runway is less relevant. Focus on free cash flow (FCF) margin instead.
- Danger zone: under 4 months at any stage
For benchmark context, see ecommerce cash runway benchmarks by stage.
The most common mistake
Computing runway off the headline cash number without accounting for committed outflows. If you have $500K in cash but a $300K supplier purchase order (PO) settling next week, your true runway is computed against $200K, not $500K. CFO-grade runway is "available cash after near-term committed outflows," not just whatever your bank account says today.
Frequently Asked Questions
what's actually a healthy cash runway?
Venture-funded: 12 to 18 months. Working-capital-funded: 6 to 12 months. Under 4 months at any stage is the danger zone and requires immediate action.
gross burn or net burn for runway?
Net burn. Gross burn overstates urgency because it ignores incoming cash.
runway vs burn rate, what's the difference?
Burn rate is dollars per month. Runway is months (cash divided by burn rate). Different questions, both worth tracking.
Related Terms
- What is burn rate?
- What is free cash flow margin?
- What is cash conversion cycle?
- Ecommerce cash runway benchmarks by stage
Browse the full ecommerce finance glossary for every metric and money term a DTC operator needs.
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