What it is: Runway refers to when a company can operate without running out of cash. It is calculated by dividing the available cash balance by the average monthly burn rate, representing the company's ability to sustain its operations.
Why it is important: Runway is a critical metric for startups as it assesses their financial sustainability and the time available to achieve key milestones, secure funding, or generate positive cash flow. Monitoring runway helps startups manage cash flow, make informed financial decisions, and plan fundraising activities.
Formulas: Runway = Available Cash Balance / Average Monthly Burn Rate
How to use it in the context of startups: Startups can calculate their runway to evaluate their financial position and ability to sustain operations. By projecting future cash flows, estimating burn rates, and analyzing runway, startups can plan fundraising activities, adjust spending, and make strategic decisions to extend their runway and secure long-term viability.
