--- title: "Key financial indicators: burn rate and runway" subject: "Entrepreneurship Development" chapter: 6 key: "semester_7/entrepreneurship_development:burn-rate-runway-indicators" source: https://www.bctengineer.com/q/semester_7/entrepreneurship_development/burn-rate-runway-indicators site: BCT Engineering --- # Key financial indicators: burn rate and runway Entrepreneurship Development · Chapter 6: Growth and Startup Financing - Asked in: year not given, 6 marks - Video: [Your Burn Rate Decides Survival Runway Decides Time](https://www.youtube.com/watch?v=hk5QMZAyW5k) — Financial Researches - Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14 - Page: https://www.bctengineer.com/q/semester_7/entrepreneurship_development/burn-rate-runway-indicators - Whole chapter: https://www.bctengineer.com/md/semester_7/entrepreneurship_development/chapter-6 ## Question Explain the key financial indicators a startup should track. A startup has Rs 1.2 crore cash in the bank. Monthly revenue is Rs 4,00,000 and monthly expenses are Rs 13,00,000. Calculate the gross burn rate, net burn rate and runway. What can the founder do if the runway is too short? ## Short answer Gross burn equals total monthly expenses Rs 13,00,000; net burn is expenses minus revenue, Rs 9,00,000/month; runway is cash divided by net burn, about 13.3 months. ## Answer #### Key indicators | Indicator | Meaning | |---|---| | Revenue growth (MRR/ARR) | Monthly or annual recurring revenue and its growth | | Gross margin | (Revenue - direct cost) / revenue | | Burn rate | Cash spent per month in excess of income | | Runway | Months the cash will last | | CAC and LTV | Cost to win a customer; value from that customer | | Churn | Share of customers lost per period | | Break-even point | Sales at which profit is zero | | Cash conversion / working capital | Speed of turning sales into cash | #### Numerical Cash = Rs 1.2 crore = Rs 1,20,00,000. **Gross burn rate** = total monthly expenses = Rs 13,00,000. **Net burn rate** = expenses - revenue: $$ 13{,}00{,}000 - 4{,}00{,}000 = \text{Rs } 9{,}00{,}000\ \text{per month} $$ **Runway:** $$ \text{Runway} = \frac{\text{Cash}}{\text{Net burn}} = \frac{1{,}20{,}00{,}000}{9{,}00{,}000} = 13.3\ \text{months} $$ #### Actions if runway is short - Cut non-essential spending; delay hiring. - Raise sales or prices; collect receivables faster. - Raise new funds early (rounds take 3-6 months), or take bridge finance. - Pivot to a cheaper model. **Answer:** Gross burn = Rs 13,00,000/month; net burn = Rs 9,00,000/month; runway is about 13.3 months. ## Check yourself The answer's key points as multiple-choice questions, with the correct option and why. 1. A startup has monthly expenses of Rs 13,00,000 and revenue of Rs 4,00,000. What is its gross burn rate? A. Rs 9,00,000 per month B. Rs 17,00,000 per month C. Rs 4,00,000 per month D. Rs 13,00,000 per month Answer: D. Gross burn rate is total monthly expenses, here Rs 13,00,000. (Key point: Gross burn rate) 2. How is net burn rate calculated, and what is it here? A. Expenses - revenue = Rs 9,00,000 B. Expenses + revenue = Rs 17,00,000 C. Revenue - expenses = Rs -9,00,000 used as runway D. Cash / expenses = Rs 9,00,000 Answer: A. Net burn is expenses minus revenue: 13,00,000 - 4,00,000 = Rs 9,00,000 per month. (Key point: Net burn rate) 3. With Rs 1,20,00,000 cash and net burn of Rs 9,00,000 per month, what is the runway? A. About 9.2 months B. About 13.3 months C. About 30 months D. About 6.9 months Answer: B. Runway = cash / net burn = 1,20,00,000 / 9,00,000 = 13.3 months. (Key point: Runway calculation) 4. Which is a sensible action if the runway is too short? A. Hire more staff to grow faster B. Wait until the cash is nearly gone before raising funds C. Raise funds early since rounds take 3-6 months, and cut non-essential spending D. Ignore receivables Answer: C. Founders should cut spending, raise sales, collect receivables faster and start fund-raising early because rounds take 3-6 months. (Key point: Actions for short runway) ## Related in Entrepreneurship Development - [NPV and payback of a startup project](https://www.bctengineer.com/question.md?key=semester_7%2Fentrepreneurship_development%3Anpv-payback-startup-project) — Entrepreneurship Development, chapter 5 - [Break-even analysis for a startup](https://www.bctengineer.com/question.md?key=semester_7%2Fentrepreneurship_development%3Abreak-even-analysis-numerical) — Entrepreneurship Development, chapter 5 - [Revenue streams and cost structure](https://www.bctengineer.com/question.md?key=semester_7%2Fentrepreneurship_development%3Arevenue-streams-and-cost) — Entrepreneurship Development, chapter 4 - [Customer lifetime value and CAC numerical](https://www.bctengineer.com/question.md?key=semester_7%2Fentrepreneurship_development%3Altv-cac-unit-economics) — Entrepreneurship Development, chapter 4 - [Marketing strategies, pricing and credit policy](https://www.bctengineer.com/question.md?key=semester_7%2Fentrepreneurship_development%3Amarketing-strategy-price-credit) — Entrepreneurship Development, chapter 5 - [Testing key business assumptions](https://www.bctengineer.com/question.md?key=semester_7%2Fentrepreneurship_development%3Atesting-key-assumptions) — Entrepreneurship Development, chapter 3 ## Related in other subjects - [EPS and book value; ABC project Rs 6,00,000](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeps-bv-abc-project-600000-b79) — Project Engineering, chapter 6 - [Capitalised value from Rs 20,000 monthly rent](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Avalue-building-20000-rent-2078) — Construction Management, chapter 13 - [EPS and book value; capital Rs 5,00,000](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeps-bv-capital-500000-2000-shares) — Project Engineering, chapter 6 - [EVA and S-curve; Rs 30,00,000, 24 months](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeva-s-curve-24-months-c76) — Project Engineering, chapter 4