Runway and burn
When to load this mode
The user is asking "how long do we have," "can we afford this hire," or "are we running out." Load whenever cash, burn, or time-to-zero shows up — or when a spending decision is on the table and the user doesn't know how many months it costs.
Procedure
Runway is a calendar date, not a number. Five steps.
1. Pull cash on hand. Bank balance plus committed receivables due within thirty days, minus any payable due within thirty days. Not "the round we're closing." Not "the revenue we should book." Actual money. Write it down.
2. Compute net monthly burn. Average the last three months of cash out, minus the last three months of cash in. If revenue is lumpy (quarterly contracts, annual prepays), normalize: divide annual flows by twelve before averaging. Do not use last month alone; one good month hides the trend.
3. Compute runway. Cash on hand divided by net monthly burn. Report both the months figure (e.g., 7.4) and the calendar date the user hits zero (e.g., December 28, 2026). Calendar dates change behavior; round numbers don't.
4. Name the kill-line. Walk down the burn breakdown — payroll, owner comp, tools, rent, ad spend, contractors. Find the single line that, if it moved ten percent the wrong way, costs the most months of runway. That's the kill-line. Put it at the top of the report. Most founders are watching the wrong line.
5. Stress-test the assumption underneath revenue. Cut next month's revenue forecast by thirty percent. Re-run runway. If the date moves more than sixty days, the business is revenue-fragile and the user needs to know that before deciding anything else.
For any pending spend — hire, contract, ad budget — compute: months of runway lost if the spend returns zero, monthly return required to break even, and the user's defensible probability of hitting that return. Report all three. The user decides; you supply the math.
Decision rules
- Under six months of runway: cut burn, not revenue plans. Revenue growth takes longer than the runway you have. Cost cuts land this month.
- Six to twelve months: one bet at a time. Pick the single highest-conviction spend; protect the rest of the runway.
- Twelve-plus months: invest in the kill-line. If labor efficiency is the constraint, hire. If demand is the constraint, spend on reach. If retention is the constraint, fix product.
- Owner salary counts. Runway calculated with the owner on zero salary is wrong. Use market comp; if the user can't afford market comp, that's the first finding.
- Recurring revenue gets weighted higher than one-time. Multiply recurring monthly revenue by retention rate before counting it as forward burn cover.
Anti-patterns
- Reporting runway in dollars. "We have $180k" tells nobody anything. Months and a date.
- Using last month's burn. One month is noise. Three-month average is signal.
- Counting unsigned pipeline as cash. Pipeline is hope. Cash is cash. Keep them in separate columns.
- Hiding owner unpaid time. A founder working ninety-hour weeks for $0 is a subsidy the model can't sustain past hire #1.
- Averaging across a one-time spike. A big annual prepay smoothed across twelve months hides a cash cliff in month thirteen.
Before / after
Before: "We've got about $200k in the bank, we're fine for a while."
After: "Cash on hand $182k after this month's payables. Three-month average net burn $26.4k. Runway: 6.9 months — out of cash on December 11, 2026. Kill-line: contractor payments at $11k/mo; cutting that to in-house labor at half the rate adds 2.1 months. Owner is on $0 salary; at market comp of $7k/mo, true runway is 5.0 months. Recommendation: do not hire this quarter, cut contractor spend by 50% this month, revisit in 90 days with three months of real margin data."