Financial runway refers to the period during which a start-up can continue to operate using its available financial resources before new capital is required or its existing reserves are exhausted.
It is usually calculated on the basis of current liquidity reserves and the monthly Burn rate calculated. The burn rate shows how much money a company spends each month.
The simplified calculation is as follows:
Runway in months = available liquidity ÷ monthly net burn rate
One example:
| Key figure | Value |
| Available liquidity | 600.000 € |
| Monthly expenditure | 100.000 € |
| Monthly income | 40.000 € |
| Net Burn Rate | 60.000 € |
| Financial runway | 10 months |
Provided conditions remain the same, the start-up can continue to operate for around ten months before additional capital is required.
For start-ups, financial runway is important because it shows:
- how long the current cash reserves will last
- when a new round of funding should be prepared
- how much time is left for product development and market entry
- whether planned recruitment and investments can be financed
- how urgently costs or revenue need to be adjusted
A short runway can severely limit founders’ room for manoeuvre. Funding rounds, grant applications and discussions with investors often take several months. That is why the process of raising capital should not only begin once financial reserves are almost exhausted.
Options for extending the runway are:
- reduce running costs
- Prioritising expenditure or investment
- Renegotiate payment terms with suppliers
- Adjust prices or business models
- Boost turnover more quickly
- Collect debts sooner
- Check for grants or bridging finance
- postpone less important projects
However, a longer runway is not automatically better. Excessive cost-cutting can slow down product development, sales or growth. The aim, therefore, is not simply to have the longest possible runway, but to use capital wisely to achieve key milestones.
Common mistakes in runway planning include:
- Future expenditure is being underestimated
- One-off costs are not taken into account
- The projected turnover figures are too optimistic
- Taxes and payment deadlines are overlooked
- The burn rate is updated too infrequently
- Fundraising is starting too late
The financial runway should therefore be recalculated regularly on the basis of current income, expenditure and plans. innoWerft helps founders to assess their financial plans and capital requirements, prioritise relevant milestones and prepare in good time for meetings with investors and other funders.