We commonly talk about cash runway from the startup perspective. But in the early days, it's less about the company's runway and more about the founder's runway. This personal runway is far less talked about: founders have a timeline to get money from customers or investors. The founder’s personal financial situation plays a crucial role in sustaining the vision and drive required to navigate the uncertainties of entrepreneurship.

Understanding the Founder's Personal Runway

For many entrepreneurs, embarking on a startup journey means taking a leap of faith. You put your time, reputation, and finances on the line to chase a vision. The founder's cash runway refers to the length of time they can sustain themselves financially while working on their startup before needing additional income or funding. Why does this matter? The longer the founder's runway, the more time they have to iterate and find product-market fit.

Key Financial Factors in Determining Your Personal Runway

Managing personal finances is a critical aspect of the founder's journey. Before diving headfirst into entrepreneurship, founders must assess their financial situation realistically. This includes evaluating existing savings, outstanding debts, monthly expenses, and any dependents or financial obligations. You must also account for increased personal expenses you might not have had while working for someone else. For example, founders often cite that the number one expense driving personal runway is healthcare costs. Understanding your personal cash burn helps determine how long a founder can afford to invest in a startup before seeing traction.

The next layer to reflect upon is personal financial goals. These goals and boundaries require pretty frank discussions with whomever you share resources with like long-term partners, spouses, or parents. Is there a large investment you need to save for like a house, college tuition for your kids, or retirement? How long are you comfortable putting off saving for these items? How is your parent's physical and financial health? What are the odds you will need to support them financially in the next 5 or 10 years? Where cash burn is certainly a critical aspect of personal runway, these circumstances also drive deadlines on the founder journey.

Finally, a founder must understand their personal risk tolerance. How close to the sun are you willing to fly? Founders with a high risk tolerance may be willing to go negative, that is take on personal debt to fund the business. Others may be willing to kiss zero and have the confidence they'll figure it out from there. And still others may be only willing to put a certain sum into the business, while protecting other assets or financial needs. Wherever you decide you fall on this spectrum, write a letter to yourself with all of your reasons. It's easy to fall into the slippery slope of "giving it just one more quarter."

Prudent financial planning involves risk management. Entrepreneurs must be prepared for the possibility of their startup not gaining traction as quickly as anticipated. Building an emergency fund and minimizing personal expenses can provide a buffer during lean times, reducing the financial stress and allowing founders to focus on growing their business.

All of these factors determine a founder's personal runway and inform decisions regarding how long a founder can invest in making a vision a reality.

Founder's Personal Runway Questionnaire

To determine your personal runway, ask yourself these questions. Be sure to review your answers with any committed partners or cofounders.

Determine Expenses

1. How much am I spending per month?
2. What new expenses will I have as an entrepreneur?
3. Explicitly, what is my plan for health insurance?
4. Will any of my expenses qualify for assistance when I have no income? i.e. eligibility for lower rent, healthcare, child care, etc.
   
5. What expenses can I cut entirely?
6. What budget am I realistically willing to live on?
7. How good have I/we been at following a budget in the past?
8. Are there any upcoming large or one-time expenses I need to plan for? i.e. property taxes or buying options from a recently-departed startup.

Identify Income

9. Did I receive any severance?
10. How much does my spouse net? Will this increase? i.e will there be a lower tax rate without my income?
11. How much passive income do my saving and investments generate?
12. What is the interest rate on my savings account? Is a higher rate account available?
13. How much do these investments generate in a good quarter? In a bad quarter
14. Am I willing/able to rent out my house or apartment?
15. Are there any services I can offer that won't take up a lot of my time?

Assess Resources Available

16. How much do I have in my checking and savings accounts?
17. How much do I have in liquid investment accounts?
18. Do I need to move any of these investments to cash to have an emergency fund of at least 6 months of expenses covered?
19. How much do I have in retirement accounts? What are the rules for using these funds should I need them? i.e. am I able to use retirement funds for purchasing my first home or paying for healthcare without penalties?
20. How much of these funds am I willing to use on this company? (see personal goals section)
21. Are there any lines of credit I can open at a low rate? i.e. HELOC or personal LOC
22. What is my credit card limit? Can I increase it?

Reflect on Personal Financial Goals

23. What known major financial events do I need to plan for? Consider medical procedures, house, wedding, baby, child care, college tuition, parental care, retirement, etc.
24. When is the earliest these events could happen?
25. When is the latest I am willing to delay them?
26. How much will I likely need for each event?
27. If I quit my startup, how much would I likely make?
28. Keeping my personal expenses low, how much would I be able to save each month with that income?
29. Taking into account the cost and timing of each event as well as my maximum monthly savings if employed, how long can I afford to pursue this start up with no income?

Define Motivations and Milestones

30. What is your ideal long-term financial outcome from starting a company?
31. When is the latest you would be comfortable earning your first paying customer?
32. When is the latest you would be comfortable taking your first paycheck?
33. If you exited the company in the each of the following timelines, what is the minimum amount you would need for it to feel "worth it" to you? 5 years, 10 years, 20 years?