You're Calculating Your SaaS Runway Wrong

The most dangerous number in your startup

Ask a SaaS founder how much runway they have. They will usually say something like: "We have £600K in the bank and we are burning about £50K a month, so about 12 months."

Sounds reasonable. Except the £50K burn rate came from their P&L. Net loss last month was £50K. Divide cash by loss. Twelve months.

This is wrong. Sometimes dangerously wrong.

P&L net loss is an accounting number. Burn rate is a cash number. They are not the same thing, and the difference between them can be months of runway — the difference between raising your next round comfortably and running out of cash before the term sheet arrives.

Why P&L loss is not your burn rate

Your P&L captures revenue and expenses on an accrual basis — when they are earned or incurred, not when cash moves. This creates several gaps between what the P&L says and what your bank account does:

Cash you received that is not revenue yet

You closed a £60,000 annual deal last month. Cash hit the bank. But if you are recognising revenue correctly, only £5,000 appears as revenue on the P&L. The other £55,000 sits in deferred income. Your P&L shows a larger loss than your cash position suggests.

Cash you spent that is not an expense yet

You paid £18,000 for annual insurance in January. The P&L expenses £1,500 per month (spreading the cost). But the cash is already gone. In January, you spent £16,500 more cash than the P&L shows.

Fundraising and loans are not revenue

If you raised £500,000 last quarter, that money is in the bank but never appears on your P&L. Similarly, a £200,000 loan increases your cash but is not revenue. When you divide cash by P&L loss, you are dividing a number that includes fundraising proceeds by a number that does not — and getting a false sense of security.

PAYE, VAT, and corporation tax are timing bombs

Your P&L accrues for employer NIC and pension contributions monthly. But VAT is paid quarterly. Corporation tax is paid annually (or in quarterly instalments). These create large cash outflows that do not match the smooth monthly P&L expenses.

A company showing £50K monthly P&L loss might have a £70K cash burn in a VAT payment month and £45K in the months between. The average is not £50K — and the variance matters when you are counting months.

SaaS businesses do not burn evenly

This is the part most founders miss. Burn rate is not constant:

• New hires — Two engineers starting next month means £15K+ more cash out per month. Last month's P&L does not reflect this.
• Quarterly payments — Rent, insurance, and software subscriptions create cash spikes.
• Customer payment terms — Net-30 invoices look great on the P&L but the cash has not arrived yet.
• One-offs — Legal fees, office fit-out, contractor projects hit cash in one month but accrue differently on the P&L.

The result: your cash burn might be £30K one month, £80K the next, and £45K the month after. Dividing cash by any single month's burn gives you a number that is wrong for the other eleven months.

The only way to calculate runway properly

Stop dividing. Start projecting.

Build a month-by-month cash flow forecast. For each month going forward:

Opening cash = last month's closing cash

Cash in:

• Collections from existing invoices (based on payment terms and AR ageing)
• Expected collections from new deals (based on pipeline and billing frequency)
• Other inflows (grants, R&D tax credits, loan drawdowns)

Cash out:

• Payroll (including NIC, pension, and planned hires with start dates)
• Rent, software subscriptions, marketing spend
• VAT payments (quarterly, on schedule), corporation tax
• Loan repayments and any planned one-off costs

Closing cash = opening + cash in - cash out

Your runway is the month where closing cash hits zero.

This approach captures everything: variable burn, planned hires, payment timing, tax obligations, and seasonal patterns. It gives you a real date, not a fictional average.

Operational burn vs total burn

One more distinction. Strip out fundraising proceeds and loan drawdowns from your cash flow. You want operational burn — how much cash the business consumes from its own operations.

If you raised £500K three months ago and your bank balance is £600K, you need to know how much of that came from fundraising versus operations. This tells you how quickly you are consuming the investment and when you need to raise again.

Use your month-by-month forecast to find the zero-crossing month. That is your real answer.

By the time you realise it is shorter, your options are limited

Runway is the metric that creates the most confusion and the most accountability. Boards ask about it. Investors ask about it. And the consequences of getting it wrong are binary — you either have cash or you do not.

Here is the pattern I see too often:

1. Founder believes they have 12 months of runway
2. Three months later, a VAT bill, two new hires, and slower-than-expected collections have eaten into cash faster than expected
3. Actual runway is now 6 months
4. Fundraising takes 4-6 months minimum
5. They needed to start fundraising yesterday

The gap between perceived and actual runway is usually 2-4 months. In a business burning £50K-100K per month, that is £100K-400K of cash you thought you had but did not. And if your ARR is also wrong, your revenue projections are built on a second layer of bad data. By the time you discover the shortfall, investors can smell desperation. Bridge rounds come with punitive terms.

A proper cash flow forecast saves you

Build a 13-week direct cash flow forecast (for near-term accuracy) and an 18-month indirect forecast (for runway and fundraising planning). Update both monthly. Review them with your board.

This is the single most important financial document in a pre-profit SaaS company. Not the P&L. Not the pitch deck. The cash flow forecast.

The first approach is what most founders use. The third is what every founder should use.

What to do next

If you are dividing your bank balance by your P&L loss, stop. Build the month-by-month forecast. Include your planned hires, VAT schedule, payment terms, and expected new revenue.

If the resulting runway is shorter than you thought, you now have time to act. Cut costs, accelerate collections, adjust hiring, or start fundraising earlier. These options exist at 9-12 months of runway. Most disappear at 3-4 months.

If you need help building a proper cash flow forecast, that is what our financial planning service delivers. We build the model, stress-test it, and give you a clear view of when you need to raise and how much.

For more on SaaS cash flow management, read our guide to cash flow forecasting.