Cash Runway
Definition
Cash runway is 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.
Explanation
Cash runway is a critical metric for startups and growing businesses. It tells founders how many months they have before needing additional funding or reaching profitability. Investors closely monitor runway to assess financial health and funding urgency.
A healthy runway is typically 12-18 months, giving the company enough time to hit key milestones, raise additional capital, or achieve profitability. Reducing burn rate, increasing revenue, or securing funding can extend the runway.
Example
A startup with $500,000 in the bank and a monthly burn rate of $50,000 has a cash runway of 10 months.