How do you calculate cash runway?

An invented software company holds $2,870,000 at the end of March. Its net burn was $162,000 in January, $149,000 in February and $142,000 in March.

• Average net burn = (162,000 + 149,000 + 142,000) ÷ 3 = $151,000
• Runway = 2,870,000 ÷ 151,000 = 19.0 months

March alone would have given 20.2 months: a more flattering answer, because March was the cheapest month.

One month swings with an annual software bill, a quarterly tax payment or a large customer receipt. Three months smooths those out and still reflects recent hiring or cuts. Use the same window every month, and say which in the board pack.

• Include current and deposit accounts you can reach within the runway, and cash in transit you are certain of.
• Leave out restricted cash (rent deposits, guarantees), undrawn loan facilities (show those separately as headroom) and money held on trust for customers.

Gross burn is everything the business spends. Net burn takes away what customers pay in. Runway uses net burn, and leaves out one-off financing such as equity raised or a loan drawn. See how to calculate net burn.

• The business isn't burning cash. If the three-month average is zero or cash is growing, report that, not an infinite runway.
• Lumpy businesses. A project business paid at milestones needs a cash forecast, not a runway.
• Changes already agreed. About to hire five people? Runway on past burn is optimistic; say so in the commentary rather than changing the formula.

These are common rules of thumb, not advice. Your investors may use other thresholds.

• Last month's burn alone, which flatters or alarms depending on the month.
• An overdraft limit counted as cash. Show it as headroom.
• Known changes ignored. Say what an agreed raise, hire or price rise does to runway.
• Currencies mixed without saying which rate was used.
• The method changed between meetings. Boards remember last month's number; if the definition changes, show both once.

Magic MIS works runway out on the board itself: cash at the newest month ÷ the average monthly fall in cash and bank over the three months before it, with cash projected a year ahead at that rate. It uses the whole change in cash, so money raised or borrowed in those months is in it; where that matters, read it beside cash from operations, which the board also shows. It is a projection, not a forecast, and its working says so. Nothing is charged for reading it.