SaaS runway is the number of months your usable cash can fund the business at its current net burn rate. Burn rate measures how fast cash is leaving after receipts and payments, and runway turns that into a decision about hiring, pricing, spending, fundraising or slowing down.
Carr Accounting Studio is a UK accounting firm for founders. This guide explains the formulas, the judgement calls and the cash traps that matter for a founder-led SaaS company.
What is SaaS burn rate?
Gross burn is cash operating costs paid in a period. It shows the cost base: payroll, software, contractors, hosting, marketing, rent, loan payments and other regular outgoings.
Net burn is cash paid out minus cash received in the same period. It shows how the bank balance is moving after customer receipts. For runway decisions, net burn is usually the better starting point because it reflects the real cash movement.
Separate tax cash where possible. VAT, PAYE and Corporation Tax money can make the bank balance look healthier than the business cash really is. A founder who treats every pound in the bank as spendable can run into a tax bill that was visible months earlier.
How do you calculate SaaS runway?
The basic formula is:
| Measure | Formula |
|---|---|
| Gross burn | Cash operating costs paid in the period |
| Net burn | Cash paid out in the period - cash received in the period |
| Cash runway | Usable cash / average monthly net burn |
Use a period average that matches the decision. If revenue and costs swing month to month, use a rolling forecast instead of one month in isolation. A single unusually good receipt month can make runway look better than the current plan supports.
Where net burn is close to zero or the company is cash-generative, the formula stops being the whole answer. Look at fixed commitments, tax due, payroll, planned hires and downside cases as well as the simple division.
Which cash balance should you use?
Start with bank cash, then remove restricted or committed cash:
- VAT, PAYE or Corporation Tax cash collected but not yet paid
- payroll due before the next reliable receipts land
- loan repayments and finance commitments
- refunds or credits you expect to honour
- grants, deposits or funds ring-fenced for a specific purpose
- cash needed to fulfil annual-plan customers who have already paid
Add near-term receipts only when the timing is supported by invoices, payment processor data or signed contracts. A forecast built on hoped-for receipts can make a tight position look fine.
The output is usable cash: the part of the bank balance the founder can make decisions with.
How do MRR and churn affect runway?
MRR tells you the recurring revenue base. Churned MRR reduces future receipts. Expansion MRR improves future receipts. Annual prepayments increase cash now but create deferred revenue and a delivery obligation later.
That is why runway work should connect to management accounts. The recurring revenue bridge (the same thing you'll see called an MRR or ARR waterfall), deferred revenue schedule and cash forecast need to share the same definitions. If the MRR report says the business is growing while the cash forecast says runway is falling, the founder needs to know which driver is causing the gap.
Common drivers include delayed customer payments, annual software renewals, payroll changes, tax payments, usage-based revenue timing and customer churn. Each one affects cash timing differently.
Should a self-funded founder and a funded founder read runway differently?
A self-funded founder is usually protecting optionality: stay profitable, avoid surprise tax bills, decide when a hire is affordable and keep enough cash to handle slower sales.
A funded founder is usually managing an investor-backed plan: burn against milestones, timing of the next raise, and what happens if sales take longer than planned.
The formula can be the same, while the decision behind it changes. That is why Carr Accounting Studio avoids recommending generic runway targets. The right runway depends on the plan, sales cycle, payroll commitments, funding options and the founder's own risk tolerance.
What should your runway report show each month?
A useful runway report should show:
- usable cash and committed cash separately
- gross burn, net burn, receipts and payments
- runway under the current plan
- a downside case where sales or collections are slower
- dated payments such as payroll, tax, loan repayments and annual software renewals
- planned hires or major spend
- what changed since the last forecast
- the decision the founder needs to make next
The decision is the critical part - a runway report should lead with the decision it supports: hire, wait, raise, cut spend, invoice sooner, change payment terms or keep the plan.
When should runway become a formal forecast?
Runway should become a formal forecast when cash timing is driving real decisions. Payroll, funding, tax, debt, hiring and large product spend all create moments where a rough spreadsheet can give false comfort.
At that point, move to a named forecast with a cadence, data sources, version history and review notes. For a short-term cash question, a rolling receipts-and-payments forecast may be the right tool. For a steadier SaaS company, a monthly forecast linked to management accounts may be enough.
The forecast is a visibility tool. It should show where cash gets tight, what causes the movement and which actions are available. It should not pretend to remove risk.
Frequently asked questions
What is a good SaaS runway? A good runway is the amount that supports your plan with room for your sales cycle, hiring commitments, tax payments and funding options. Generic benchmark months can be misleading without the business context.
How do I calculate SaaS runway? Use usable cash divided by average monthly net burn. Usable cash should exclude restricted or committed cash, and net burn should reflect cash paid out minus cash received.
Should I use gross burn or net burn? Use both. Gross burn shows the cost base. Net burn shows the movement in cash after receipts. Runway usually uses net burn, with gross burn alongside it so the founder can see the spending base.
Why does deferred revenue matter for runway? Deferred revenue means customers have paid before the service is earned. It helps cash now, but the company still has to deliver later, so it should not be treated as free surplus cash.
Can a profitable SaaS company still have a runway problem? Yes. Cash timing can create pressure even where profit looks healthy. Late receipts, tax bills, payroll, loan repayments, refunds and annual costs can all tighten the bank position.
Work with us
If runway is starting to shape hiring, pricing or funding decisions, Carr Accounting Studio can help turn the numbers into a forecast you can actually use. Book a call with Carr Accounting Studio and we can talk through what your cash view needs to show.
General information, not advice. Definitions and formulas should be confirmed for your own business before you rely on them. Written by David Carr, chartered accountant and founder of Carr Accounting Studio.