In good times and bad, always keep an eye on how long your funds can carry your effort. Your funding runway tells you how long you have before you burn through all of your cash. A funding runway is a mechanism for managing startups and most budget-based projects. Take your cash balance and divide that by your net monthly burn rate. If you have $300k and your spending $50k monthly, you have a six-month runway. This gives you six months to:
- increase your revenue,
- raise additional investments,
- and/or reducing (optimize) expenditures.
All three mechanisms can extend your runway and can be engaged concurrently. They’re listed in order of priority. Frankly, the most enduring and beneficial effort is to focus on increasing revenue. As a business, your maxim is to Do Business. Showing your business has traction makes it easier to find investors.
In addition to knowing your funding runway, it’s critical to have warning bells specific to your business and stress thresholds. Don’t get into the situation of having one month of funds but need three more months of development before you can launch. If the investors you lined up in your last month don’t come through, you’ll have to scramble to pull out a miracle. A 60 or 90-day buffer provides ample time to line up additional investors, launch a crowdfunding project, and possibly streamline operations to eke out another 15-30 days.