Playbook / Lessons / Team and numbers
StartupsKnow your burn and runway
Wilson defines burn rate as the speed at which a company's cash balance is falling and shows a back-of-the-envelope way to work it out from two cash balances and the months between them. Dividing the cash left by that burn gives the months remaining, and he says entrepreneurs, CEOs and CFOs should always know the date they would run out. He also describes a more detailed method that separates gross burn from net burn.
“Your burn rate is the speed at which your cash balance is going down.”— Fred Wilson, Burn Rate, Dec 2011
Do this
This week, take today's cash and last month's cash, work out your monthly burn, and divide the cash left by it to get your months of runway.