Gross burn and net burn
Two different numbers that get used interchangeably, usually to the founder's disadvantage.
Gross burn is total monthly cash out. Net burn is gross burn minus cash collected. Net burn drives runway; gross burn tells you what your cost structure actually is.
The distinction matters because revenue can fall. A company with $400k gross burn and $100k net burn looks comfortable until a large customer churns, at which point net burn jumps toward gross. Track both, and know what your runway looks like at gross burn.
Use collected cash, not revenue
Net burn calculated on recognized revenue rather than cash collected is optimistic by exactly your receivables balance. If customers pay in 60 days, that is two months of overstated runway.
Runway is a range
Cash divided by last month's net burn is a single-point estimate that assumes nothing changes. Something always changes.
Model three cases and report all three. The spread between them is more informative than any single number, and it is what a board actually wants to see.
- Base case: current plan, current hiring, revenue forecast at your honest expectation
- Downside: revenue flat from today, planned hires still made, no cost action taken
- Survival: revenue flat, hiring frozen, discretionary spend cut — the floor on how long you can last
Where the money actually goes
Before cutting anything, get an accurate picture. In most venture-backed companies the distribution is more concentrated than founders expect.
- People — typically 60–75% of burn including contractors and benefits
- Cloud and infrastructure — often the second line, and often the least examined
- Software subscriptions — accumulates quietly, rarely audited, frequently 5–10% of burn
- Sales and marketing spend — the most variable and most reversible line
- Facilities, insurance, and professional services
Extending runway, in order of cost
Sequence matters. Start with the levers that do not damage the business, and only escalate if they are insufficient.
- Collect faster. Tighten terms, invoice on delivery, chase receivables systematically. Free, and often worth weeks.
- Audit subscriptions. Cancel unused tools. Reliably finds 5–10% of software spend with no operational impact.
- Right-size infrastructure. Reserved instances and removing idle resources commonly cut cloud spend 20–30%.
- Renegotiate annual contracts. Vendors would rather discount than lose you, particularly at renewal.
- Slow hiring. Freezing open roles is far cheaper than reversing filled ones.
- Shift to annual prepay. Offer a discount for upfront payment — trades some revenue for immediate cash.
- Non-dilutive financing. Revenue-based financing or a venture debt facility, arranged while you still have leverage.
- Reduce headcount. Last, decisively, and once rather than in waves.
The timing rule
Act at 9 months of runway, not 4. Every lever above works better with time — debt is cheaper, negotiations are stronger, and a raise from a position of choice prices better than one from necessity.
What to report monthly
Runway management fails on cadence more than on analysis. A short fixed set of numbers, reported every month without exception, catches trend changes early.
- Cash on hand and gross and net burn for the month
- Runway in months under all three cases
- Burn multiple — net burn divided by net new ARR
- Variance against the prior forecast, with an explanation for anything material
- The date the next financing decision has to be made