Runway, burn and profit: three numbers to watch

Profit tells you whether the business makes money. Burn tells you how fast cash leaves. Runway tells you how long you can keep going if nothing changes. You need all three, because any one of them on its own can mislead you.

Here are plain definitions and formulas, two worked examples, the reason a profitable business can still run out of cash, how big a cash buffer is commonly recommended, and a short routine to run every month.

The three numbers

Profit        = Revenue - Expenses
Gross burn    = All cash going out in a month
Net burn      = Cash going out - Cash coming in
Net runway    = Cash on hand / Net burn
Gross runway  = Cash on hand / Gross burn

Profit is revenue minus the costs of running the business, for a period such as a month or a year. When revenue counts depends on your accounting method. Under the cash method you count income when you receive it. Under the accrual method you count it when you earn it, usually when you invoice, whenever the payment arrives.

Gross burn is every dollar that leaves the business account in a month: expenses, plus what you pay yourself, money you move to tax savings, loan payments and equipment. Everything.

Net burn is gross burn minus the cash that came in. If more came in than went out, net burn is negative, and you are cash-flow positive for that month.

Runway is how many months your cash lasts. Net runway assumes income keeps arriving the way it has. Gross runway assumes income stops completely, which makes it the stress test.

Single months are noisy, so use the average or median of the last three months for burn.

Worked example: a freelancer

Say you are a freelance developer working as a sole proprietor, with $24,000 in your business account. A typical month over the last three looks like this:

The math:

• Profit: $7,000 - $1,000 of expenses = $6,000 a month
• Gross burn: $1,000 + $5,500 + $1,500 = $8,000
• Net burn: $8,000 - $7,000 = $1,000
• Net runway: $24,000 / $1,000 = 24 months
• Gross runway: $24,000 / $8,000 = 3 months

You are profitable, and your cash still shrinks by $1,000 a month. That is because, as a sole proprietor, owner pay is a draw, not an expense, so it doesn’t reduce profit, but it does leave the account. The same goes for tax savings. Treat that money as spent: it belongs to the IRS or the CRA, not to your runway. Our guide to quarterly estimated taxes covers how much to set aside.

Twenty-four months of net runway sounds comfortable. The number that matters more for a freelancer is gross runway: if your clients stopped paying tomorrow, you would have three months. Paying yourself a little less than your average profit, say $5,000, turns the net burn into a small monthly gain.

Worked example: a small studio

Now a four-person studio with $90,000 in the bank, invoicing on Net 30 and using accrual accounting. This month:

The math:

• Expenses: $42,000, all paid this month
• Profit: $45,000 - $42,000 = $3,000
• Gross burn: $42,000
• Net burn: $42,000 - $38,000 = $4,000
• Net runway: $90,000 / $4,000 = 22.5 months
• Gross runway: $90,000 / $42,000 = about 2.1 months

The studio made $3,000 and lost $4,000 of cash in the same month. The $7,000 difference is invoices sent but not yet paid. If a few clients stretch from 30 days to 60, cash coming in drops while payroll doesn’t move, and net burn can jump in a single month. Our guide to invoice terms covers deposits, shorter terms and a reminder schedule.

Gross vs net burn: watch both

Net burn tells you how fast you are shrinking under normal conditions. Gross burn tells you what happens when conditions change. Income can stop with one lost client or one late payment. Costs rarely stop that fast.

Net burn can also hide concentration risk. If one client pays half your income, your net burn looks fine until that client leaves, and then it moves most of the way to your gross burn overnight. If you rely on a few clients, give more weight to gross runway.

Why a profitable business can run out of cash

Profit is an accounting measure. Cash pays the bills. Canada’s BDC notes that because money owed to you doesn’t line up neatly with money you owe, a business can hit a cash crunch while it is profitable on paper. The usual gaps:

• Unpaid invoices. Under accrual accounting, an invoice counts as revenue the day you send it. The cash comes later, or late.
• Owner pay. For a sole proprietor, draws don’t reduce profit, but they do reduce cash.
• Taxes. Income tax on a sole proprietor’s profit is a personal bill, usually paid from the same cash. Sales tax and GST/HST you collect were never yours to begin with. See sales tax and GST/HST.
• Loan principal. Repaying the amount you borrowed reduces cash but is not an expense. Only the interest is.
• Equipment and annual bills. A new laptop or an annual software plan leaves in one month. For accounting and tax, the cost of equipment is often spread over several years (depreciation in the US, capital cost allowance in Canada).
• Growth. BDC points out that growth means investing in inventory while waiting for receivables (money clients owe you) to be paid. For a service business, the same thing happens when you hire before the revenue arrives.

How much cash buffer is enough

There is no official number, but the common guidance is consistent:

• SCORE, the US small business mentoring network, says most experts suggest keeping three to six months of operating expenses in reserve, adjusted for your cash flow, growth plans and funding. The US Chamber of Commerce gives the same range.
• BDC in Canada says many entrepreneurs like to have enough cash for 90 days of operations, counting cash in the bank and room on a line of credit.

Most small businesses hold far less. The JPMorganChase Institute found the typical small business in its nationwide sample of 2.1 million Chase business banking customers held 17.6 cash buffer days in 2025. Cash buffer days are how long a business could cover its average outflows if all money coming in stopped. The Institute’s 2016 study of 597,000 small businesses found a median of 27 days. The samples differ, but both are well short of three months.

A practical way to use this:

1. Start with three months of essential costs: your gross burn minus anything you would cut right away.
2. Aim higher, toward six months, if your income is lumpy, seasonal or concentrated in a few clients.
3. Keep the buffer in a separate savings account, so it doesn’t quietly become operating cash. The same logic as keeping business and personal money separate.
4. Arrange a line of credit before you need it. BDC describes short-term credit as a way to bridge the gap between bills you pay and invoices clients haven’t paid yet.

A monthly review routine

Run this right after your monthly close, once the month’s transactions are in and categorized. It takes about twenty minutes.

1. Cash. Write down the month-end balance across business accounts. Leave out tax savings.
2. Gross burn. Total everything that went out, including owner pay and loan payments.
3. Net burn. Subtract what came in. Compare it with the last three months.
4. Runway. Work out both gross and net runway and note them next to last month’s.
5. Profit. For the month and the year to date.
6. Unpaid invoices. The total, and anything more than 30 days past due. Follow up today.
7. The next 90 days. Tax payments, annual renewals, insurance, planned purchases, and client contracts that end.
8. One decision. Chase an invoice, adjust your pay, cancel a subscription, raise a price, or top up the buffer.

If gross runway falls below three months, rebuild the buffer before you raise your pay or add a fixed cost. If clients pay in other currencies, a rate move shows up here first; see invoicing clients in another currency.

This is general information, not accounting or tax advice. How you count revenue and expenses depends on your accounting method and business structure, so check with an accountant.

How Mintas helps

• Reports show revenue, profit, expenses by category, burn rate, runway and cash balance, built from bank and card accounts connected read-only through Plaid and synced daily.
• Burn rate is your monthly spending. Runway divides the cash in your bank accounts by the median spending of the last three completed months, so one unusual month doesn’t swing it. Because it uses total spending, it is closest to gross runway, the conservative number.
• Invoices are marked paid when the deposit reaches your bank, so unpaid and overdue invoices are easy to see.
• Reports also include a six-month revenue forecast. Mintas does not move money or calculate tax owed.