runway
The amount of time a company can continue operating at its current burn rate before exhausting its cash reserves.
Example
“With $3M in the bank and $300K monthly expenses, the startup had 10 months of runway to raise its next round.”
Memory Tip
RUNWAY = how much time (cash) you have to take off before you crash.
Why It Matters
Understanding runway helps you evaluate whether a company or personal project has sufficient financial stability to survive downturns or achieve profitability. For investors and employees, knowing the runway indicates how long a business can sustain operations, which directly affects job security and investment risk.
Common Misconception
Many people assume runway only matters for startups, but established companies also need to monitor their burn rate and cash reserves. Another mistake is thinking a long runway guarantees success, when in reality a company could still fail if it does not achieve profitability or secure additional funding before cash runs out.
In Practice
A tech startup has 2 million dollars in cash reserves and spends 250,000 dollars per month on salaries, operations, and development. This means the company has an 8-month runway before depleting its reserves, so the founders need to either reach profitability, reduce expenses, or secure additional funding within that timeframe to survive.
Etymology
From the aviation metaphor: like a plane needing enough runway to take off, a startup needs enough cash runway to reach profitability.
Common Misspellings
Small business accounting made simple
Related Terms
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See Also
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