Financial Glossary
Runway
Runway is the number of months a company can continue operating at its current net cash burn rate before exhausting available cash: Runway (months) = Cash on Hand divided by Monthly Net Burn Rate. Net burn equals total cash outflows minus cash inflows in a period. Runway is distinct from profitability -- a company can be generating revenue and still have a dangerously short runway if expenses exceed income. Investors, boards, and lenders use runway as a primary signal of fundraising urgency and operational health.
Problem & Application
A hospitality-tech startup has $900,000 in the bank and spends $150,000 per month on payroll, software, and marketing while collecting $90,000 in monthly subscription revenue. Net burn is $60,000 per month, giving a runway of 15 months. If the team hires two engineers, net burn rises to $80,000 and runway compresses to roughly 11 months. A fractional CFO models three scenarios -- maintain, hire, and hire plus price increase -- and shows the founders that a 10% price increase on existing contracts, fully collectable within 60 days, extends runway by 3 months at no additional cost. With a Series A process typically taking 4 to 6 months, that buffer is the difference between negotiating from strength versus accepting unfavorable terms under time pressure.
In Short
Monitoring runway allows businesses to plan financing strategies effectively, ensuring they have enough resources to reach key milestones.
How it works
Because runway is built on net burn, it moves the moment either side of the cash equation changes — a single large annual software renewal, a delayed customer payment, or a seasonal revenue dip can shorten it well before the headline number "feels" wrong. Operators and lenders typically distinguish gross burn (total monthly cash outflow) from net burn (outflow minus inflow); runway is always calculated on net burn, since incoming cash extends survival. A frequent misunderstanding is treating runway as fixed, when it is really a snapshot that should be recalculated every month against actual bank balances rather than projected ones, especially for businesses with lumpy or seasonal cash flow.
Runway for a seasonal RV park operator
Seasonality breaks the single-number version of runway, so it pays to model month by month. Consider an RV park with $240,000 cash entering the off-season. From November through March, low-occupancy months, it collects roughly $35,000 in monthly revenue against $70,000 in fixed costs (loan payment, insurance, payroll, utilities) — a net burn of $35,000. A naive calculation suggests $240,000 / $35,000 = about 6.9 months of runway. But peak season flips the sign: from June through August the park nets a $50,000 monthly cash surplus. The real question is whether cash survives the trough, not the annual average. Modeled monthly, the balance bottoms near $100,000 in April before summer bookings replenish it. A fractional CFO would flag that the operator never actually runs out — but should hold a larger off-season reserve, since one weak summer would erase the cushion entirely.
Frequently asked
What is the difference between cash runway and the cash conversion cycle?
Runway measures how many months your cash lasts at the current net burn rate — a survival timeline. The cash conversion cycle measures how many days it takes to turn spending on inventory and operations back into collected cash. Runway tells you when you run out; the conversion cycle explains how quickly working capital recycles, which directly affects burn.
How many months of runway should a small business have?
There is no universal rule, but many advisors suggest keeping three to six months of operating expenses in reserve, and longer for seasonal businesses that face predictable low-revenue stretches. The right target depends on revenue volatility, debt obligations, and how quickly you could raise cash or cut costs. Recalculate it against actual bank balances monthly rather than relying on a fixed figure.
Does runway include accounts receivable or only cash in the bank?
Standard runway uses cash on hand — money actually in the bank — not accounts receivable, because uncollected invoices cannot pay bills. Expected collections do reduce net burn as they arrive, which extends runway. Treating receivables as if they were cash is a common error that overstates how long a business can operate, especially when customers pay slowly.