Runway

What is Runway?

Runway is the time a startup can continue to operate before it needs additional financing or reaches positive cash flow.

How is Runway used?

This metric highlights the timeline within which a startup must either become self-sustaining or secure further investment to avoid running out of cash. It's used for financial planning; it informs decisions on cost-cutting, fundraising, and growth spending. Startups use it to gauge when to raise the next funding round and ensure they avoid a cash crisis by adjusting their Burn Rate.

How to calculate Runway

To calculate your startup's Runway, divide your cash reserves by your monthly Burn Rate. For example, if your startup has £50,000 in cash reserves and a monthly Burn Rate of £10,000, your Runway is 5 months.

Best Practices

Regularly monitor Burn Rate and cash balance; adjust operational costs and align growth spending to increase Runway as necessary. Startups should use a healthy margin of safety and aim for a longer Runway to accommodate unexpected expenses or delays in securing more funding.

Common Misconceptions

A common misconception is that a longer Runway is better. While a long Runway is a cushion, it may might suggest underinvestment in growth. This could lead to being out-competed by other market players, so balance growth spending with cautious financial planning.

FAQs

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