Burn rate and runway: how to calculate them, with an example

In Italy, December is the expensive month. Every employee is owed a tredicesima, a thirteenth monthly salary paid with the December payslip, so a startup’s payroll roughly doubles. Work out your burn rate from a quiet September statement and your runway will look longer than it is.

This guide shows how to get both numbers right: gross vs net burn, the cash runway formula, a worked example in euros, Paul Graham’s default alive test, how much runway to have when you raise and a monthly routine. New to startup finance? Begin with the beginner’s map from zero to a first round.

What is burn rate? Gross vs net burn

Burn rate is the speed at which a company spends its cash before it turns a profit. Carta, the cap table platform, splits it in two.

Gross burn is the total that leaves the company each month: salaries, rent, software, marketing, the accountant. Revenue stays out of it. Net burn is the cash you actually lose, gross burn minus what customers paid you that month. Carta’s own example: spend $100,000, bring in $30,000, and your net burn is $70,000.

Why track both? Net burn decides how long you last. Gross burn tells you how much you’d have to cut if revenue stopped tomorrow, and it’s the number that jumps every time you hire. Count cash, never invoices. An invoice your client hasn’t paid yet won’t cover a single salary.

Is there a right burn rate? Not in the abstract. €60,000 a month is fine with 30 months of cash and reckless with six. Still sizing your first budget? Start from how much money it takes to start a startup.

Runway calculation: the formula and its blind spot

Here’s the cash runway formula: runway (months) = cash in the bank ÷ monthly net burn.

Runway is how many months you have before the account hits zero, if nothing changes. That ‘if’ carries the whole formula. It assumes next month looks like this one: no new hire, no lost client, no December. Carta’s example: $700,000 in the bank at a $70,000 net burn is 10 months.

Two habits keep it honest. Average your burn over the last three months, so one annual software bill doesn’t fool you. Then turn the months into a date: ‘cash runs out in November 2027’ gets a reaction at a board meeting, ‘about 14 months’ gets a nod. The full fix is a month-by-month forecast, as in our guide to a startup financial model you can defend.

Worked example: burn rate and runway for an Italian startup

Say a B2B software startup in Bologna, invented for this guide, closes September 2026 with €320,000 in the bank. Five people are on payroll, with gross salaries of €15,000 a month between them. Here’s its September.

Cash out, September 2026	Amount
Salaries and employer contributions, five people	€19,500
Freelance developers	€3,000
Cloud and software	€2,000
Coworking desks	€1,500
Marketing	€4,000
Accountant, lawyer, insurance	€1,000
Gross burn	€31,000
Cash collected from customers	€9,000
Net burn	€22,000
Runway: €320,000 ÷ €22,000	14.5 months

Fourteen and a half months. Now the two Italian corrections.

First, the tredicesima. A 1960 presidential decree made it a right for every employee, and it’s paid with the December salary. In our example that’s another €19,500 in December 2026. Run the months one by one and the cash runs out in November 2027, not in the middle of December, so the real runway is closer to 13.5 months.

Second, the TFR, the severance pay every employee builds up. Article 2120 of the Civil Code sets it at one year’s pay divided by 13.5 for each year worked, about 7.4%, paid when the job ends. For this team, roughly €14,400 a year. If it stays in the company, no bank statement will show it until someone leaves. It’s still a debt: keep it in the model.

Default alive or default dead?

The formula tells you how long. Paul Graham, who co-founded Y Combinator in 2005, asked a sharper question in an October 2015 essay: ‘Assuming their expenses remain constant and their revenue growth is what it has been over the last several months, do they make it to profitability on the money they have left?’ Yes means default alive; no, default dead. ‘Half the founders I talk to’, he added, ‘don’t know whether they’re default alive or default dead.’

Back to Bologna. In March the startup collected €6,000; in September, €9,000. That’s roughly 7% growth a month. Hold costs flat, December extras included, and let collections keep growing:

Collections grow by	Collections cover costs in	Cash at its lowest	Verdict
0% a month	Never	Runs out in November 2027	Default dead
5% a month	November 2028	Runs out in February 2028	Default dead
6% a month	July 2028	About €11,500 in June 2028	Alive, with no margin
7% a month (the last six months)	April 2028	About €50,000 in March 2028	Default alive

Two points of monthly growth, 5% against 7%, separate a company that dies from one that makes it. Graham calls the bad case the fatal pinch: ‘default dead + slow growth + not enough time to fix it.’ Better to find out in October 2026 than in the summer of 2027. Trevor Blackwell, another YC co-founder, made a calculator for this test, linked from the essay: drag in expenses, revenue and growth, and it shows when you’d turn profitable.

Default alive doesn’t mean you shouldn’t raise. It means you raise to go faster, and a ‘no’ from one fund doesn’t end the company.

How many months of runway do you need to raise?

No rule is official, but investors publish rules of thumb, and the horizon keeps stretching. In 2016 Y Combinator’s seed guide had founders raising ‘for N months (usually 12-18)’. In May 2022, warning of a downturn, YC told its founders, TechCrunch reported, that it was their ‘responsibility to ensure your company will survive if you cannot raise money for the next 24 months’. In August 2026 CRV wrote that a round ‘should fund 18 to 24 months of post-close runway’.

The data agrees. Carta found a median gap of 1.9 years between seed and Series A for US startups in the last quarter of 2025. Peter Walker, who runs Carta’s insights team, put it bluntly in July 2025: ‘planning to raise VC money every 18 months is planning to fail’.

When to start raising

Work backwards from the close. CRV says ‘the raise consumes three to six months from first contact to close’, so ‘the process should open with 12 to 18 months of runway left, well before cash drops under six months’. A founder who opens with a short runway, it adds, ‘invites more scrutiny and gives up room to negotiate’.

For our Bologna startup the window is open now. At the end of October 2026 it has about 12.7 months of cash, tredicesima counted. By the end of May 2027 it’s under six.

And the size of the round? Suppose hiring after the close pushes net burn to about €45,000 a month. Multiply by 18, then by 24. You land between €810,000 and €1.08 million, buffer not included. Our guide to the use of funds shows how to tie that sum to milestones an investor can verify.

How to extend your runway

What can you do about it? Three things, best tried in this order: spend less, collect sooner, borrow cheaply.

Spend less. Graham doesn’t soften it: ‘Hiring too fast is by far the biggest killer of startups that raise money.’ On costs, CRV says to cut non-essential spend first, then renegotiate vendor and payment terms and pace hiring to milestones. In our example payroll is 63% of gross burn: that’s where the money sits, even if you touch it last.

Collect sooner. Ask annual customers to pay upfront; CRV suggests a two to three percent discount in return. Say a client pays €1,200 a year. At 3% off you bank €1,164 in January instead of €100 a month.

Borrow cheaply, starting in Italy. If your company is in the special register section for innovative startups and no more than 60 months old, Smart&Start Italia, run by Invitalia, lends at zero interest 80% of the eligible costs of a €100,000 to €1.5 million business plan. Salaries and contractors are eligible, the very costs that make up your burn. You spend it within 24 months of signing; Invitalia says it examines applications within 60 days. Runway now, repayments later: read our Smart&Start Italia guide first.

The other Italian route is a bank loan backed by the state’s Fondo di Garanzia per le PMI, which in 2026 covers 80% of loans to innovative startups. Here’s how Italy’s SME guarantee fund works.

After an equity round there’s venture debt. First Citizens Bank tells founders to ‘aim for debt that adds approximately six months of runway’, and says ‘most lenders expect you to have at least 12 months of organic runway in addition to the debt’. It suits companies that don’t need it yet; our guide to venture debt in Italy has the costs.

Checklist: your monthly burn rate routine

1. Close the month in the first week of the next. Reconcile every bank account and card.
2. Gross burn from cash out, net burn from cash collected, not invoiced. Leave VAT out of both.
3. Average the last three months, then add the exceptions: the tredicesima in December, the quattordicesima in June or July if your contract has one (commerce does, metalworkers don’t).
4. Write runway as a date. Log the TFR you owe as a debt.
5. Re-forecast 18 months of hires, collections and one-offs, then run the default alive test.
6. Below 18 months of runway, prepare the round. At 12, open it.
7. Send the numbers to investors every month, using our investor update template.

Investors will ask for these figures next to growth and retention, as our list of the metrics investors want at pre-seed and seed shows. If you’d rather not build the month-by-month version from scratch, our startup financial model template (Excel, €129) runs five years month by month, with hiring at Italian employer costs, runway, scenarios and a round simulator.

This article is general information, not legal, tax or investment advice. Payroll costs depend on your collective agreement and sector: check them with a payroll consultant, and read Invitalia’s official page before you apply for Smart&Start.