Question 1

What are burn rate and runway?

Accepted Answer

**Burn rate** is how fast a business consumes cash; **runway** is how long it can continue before running out. Together they are the most important numbers in any business that is not yet profitable.

**Gross burn** is total monthly cash going out.

**Net burn** is cash out **minus** cash in — the actual monthly decline in the bank balance. This is the figure that matters, and quoting gross burn while meaning net is a common muddle.

**Runway** = cash in the bank ÷ net monthly burn. £600,000 with a £50,000 monthly net burn gives **twelve months**.

**Why it is the central metric for a startup.** A business without profit is on a timer. Every decision — hiring, spending, how long to spend perfecting something — consumes runway. The discipline is that **runway converts every plan into a deadline**.

**What the number should be.** Conventional guidance suggests raising when you have **six to nine months** remaining, because fundraising itself takes months and negotiating with almost no runway left is a catastrophic negotiating position — investors can see it, and terms reflect it. **Eighteen to twenty-four months** after a raise is a common target, giving time to reach the milestone that justifies the next round.

**The subtleties people miss:**

**Burn is not constant.** A plan that hires through the year has rising burn, so dividing today's balance by today's burn overstates runway considerably. Model it month by month.

**Growing revenue extends runway** without any new funding, which is why net burn matters more than gross.

**Default alive versus default dead** — Paul Graham's framing — asks whether current growth would reach profitability **before** the money runs out, on existing spending. It is a more useful question than the runway number alone, and many founders have never calculated it.

**Burn multiple** — net burn divided by net new revenue — measures how efficiently spending converts into growth, and has become a standard efficiency test.

**Cutting burn is slower than it looks.** Notice periods, contracts and leases mean savings arrive months after the decision.

General information, not financial advice.

Question 2

Should you bootstrap or raise investment?

Accepted Answer

It depends far less on ambition than people assume and far more on whether the business has a structural reason to need capital before revenue — and on what you actually want the business to be. What

Question 3

How can I create a budget for my startup funding needs?

Accepted Answer

Creating a budget for startup funding involves identifying startup costs, estimating ongoing expenses, projecting revenue, determining funding sources, and regularly reviewing the budget.

Question 4

What is the difference between revenue, profit and cash flow?

Accepted Answer

They measure three different things, and a business can be strong on one while failing on another — which is why profitable companies go bust. Revenue (turnover). The total value of sales in a

Question 5

What is the difference between gross margin and net margin?

Accepted Answer

Gross margin tells you whether the product makes money. Net margin tells you whether the business does. They answer different questions and are frequently confused when people quote "margin". Gross

Question 6

What is the difference between pre-money and post-money valuation?

Accepted Answer

Pre-money is what the company is agreed to be worth before the investment; post-money is pre-money plus the money invested. The difference determines what percentage the investor gets, and confusing

Question 7

What is working capital, and why does it matter so much?

Accepted Answer

Working capital is the money tied up in running the business day to day — current assets minus current liabilities. It matters because it is where cash goes to hide. What is in it: Stock (inventory)

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