Runway is usually stated as cash divided by monthly burn. That arithmetic is correct and the resulting figure regularly overstates how much time a company actually has.
Burn is not stable
The calculation uses a recent month as though it were typical, but spending in a growing company rises as headcount, infrastructure and commitments increase.
Projecting a flat rate forward therefore extends the runway on paper while the real rate climbs each month, and the two diverge quickly.
A projection built from the hiring plan and known commitments gives a materially shorter and more accurate figure than any single month's outflow.
Committed spending is already gone
Cash in the account includes money that is contractually promised: notice periods, lease obligations, annual software renewals and supplier commitments not yet invoiced.
Those amounts cannot be redirected in a downturn, so the truly discretionary balance is smaller than the bank figure suggests.
Companies discovering this during a cost reduction find that a large share of their spending cannot be stopped within the timescale they need.
Receivables are not cash
Revenue recognised is not revenue collected. Where customers pay on extended terms, growth increases the gap between invoiced and received amounts.
A growing company can therefore run short of cash while its reported performance improves, which is a common and consistently surprising outcome.
The relevant measure for runway is cash actually received, adjusted for the historical pattern of how long collection genuinely takes.
Fundraising consumes the end of the runway
Raising capital takes months of preparation, meetings, diligence and documentation, and the process cannot begin credibly when very little time remains.
Investors reading a short runway understand the position, and the terms available to a company that must close quickly are worse than those available to one that need not.
Usable runway is therefore the total minus the time a raise requires, and the difference between the two figures is frequently substantial.
Wind-down has a cost of its own
Closing a company is not free. Notice periods, contract terminations, professional fees and statutory obligations all require cash at exactly the point when it is scarcest.
The requirements and their cost vary by jurisdiction and by how the company is structured, and directors' duties in an insolvency context differ substantially between legal systems.
Which is why the practical floor is not zero. A company needs a reserve sufficient to stop in an orderly way, and running below it removes the option entirely.