The formula is deliberately blunt: cash in the bank divided by net monthly burn. $120,000 in the account with $15,000 of net burn gives eight months of runway. Some founders refine it with a forecast that accounts for growing revenue or a known large expense, which is sensible — but the crude version is the one worth knowing by heart, because it is the version that is true if nothing improves.
Runway matters because it converts money into time, and time is the resource decisions actually consume. Hiring someone is not a $90,000 decision; it is a decision that shortens your runway by a specific number of weeks. Raising money does not make a business better, it buys more months to make it better. Founders who think in runway make different choices from founders who think in bank balance, and usually earlier ones — the useful move is available at nine months of runway and gone at three.
A concrete example: you hold $90,000 and burn $10,000 net per month, so nine months. You are considering a $4,000-a-month contractor to ship a product line. That takes burn to $14,000 and runway to about six and a half months. The real question is not whether you can afford $4,000 — it is whether that product line can plausibly cover its own cost inside six months. If it cannot, you are trading two and a half months of existence for a maybe.