# Finance

> Burn, runway, the 13-week cash flow, budgets against actuals, unit economics and the board pack.

Source: https://lopifi.com/learn/finance
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**How much runway do we have, and what will the next twelve months cost?** Burn, runway, the 13-week cash flow, budgets against actuals, unit economics and the board pack.

1. [Burn rate and runway, from the bank](https://lopifi.com/md/learn/how-to-calculate-burn-rate-and-runway) — 8 min. How do I calculate burn rate and runway for my startup? Gross burn, net burn and runway worked on Northwind's September from the bank account, with the one-offs named and the run rate shown beside them.
2. [Default alive or default dead](https://lopifi.com/md/learn/default-alive-or-default-dead) — 10 min. What does default alive or default dead mean for a startup? Whether Northwind reaches profit on the cash it has: alive as it stands, and a hiring decision that turns on one growth rate.
3. [The 13-week cash flow](https://lopifi.com/md/learn/13-week-cash-flow-forecast) — 10 min. How do I build a 13-week cash flow forecast? Northwind's next thirteen weeks, built from the September 30 balance sheet and the IRS's deposit calendar, and read for its lowest week.
4. [Budget vs actual](https://lopifi.com/md/learn/budget-vs-actual-variance-analysis) — 9 min. How do I do a budget vs actual variance analysis? September against the budget the founders wrote in August: favorable and unfavorable by polarity, a flexed cost of revenue, and the three lines that were the budget's own mistakes.
5. [The operating model: three statements, linked](https://lopifi.com/md/learn/three-statement-operating-model) — 13 min. How do I build a three-statement financial model for a startup? Northwind's fourth quarter as three linked statements: drivers in, cash derived, and a balance sheet that balances without a plug.
6. [SaaS metrics and unit economics](https://lopifi.com/md/learn/saas-metrics-and-unit-economics) — 7 min. What SaaS metrics do investors look at, and how are they calculated? Gross margin on Northwind's actuals, why it has no ARR, and NRR, GRR, CAC payback and the burn multiple worked on the subscription plan it's pricing.
7. [How a raise changes runway](https://lopifi.com/md/learn/how-a-raise-changes-runway) — 8 min. How does raising a SAFE change my startup's runway? A SAFE seen from the runway: more cash, the same burn, and Northwind turned from default dead to default alive at the growth it already has.
8. [The monthly board pack](https://lopifi.com/md/learn/monthly-board-pack) — 10 min. What should a startup's monthly board or investor reporting package include? Northwind's September pack: three statements, cash and runway with their basis, the variances worth a sentence, the 13-week low point, and every metric defined.

## Terms this track teaches

- [Gross burn](https://lopifi.com/md/glossary/gross-burn): Gross burn is a cash and runway metric, calculated as All cash out in the month, before any cash in.
- [Net burn](https://lopifi.com/md/glossary/net-burn): Net burn is a cash and runway metric, calculated as Gross burn − cash in, excluding financing inflows.
- [Runway](https://lopifi.com/md/glossary/runway): Runway is a cash and runway metric, calculated as Cash ÷ net monthly burn.
- [Run rate](https://lopifi.com/md/glossary/run-rate): One period's figure with named one-offs removed, as a measure of what a normal period looks like — run-rate burn, run-rate revenue. Always shown beside the reported figure, with the one-offs listed
- [Months of cash](https://lopifi.com/md/glossary/months-of-cash): Months of cash is a cash and runway metric, calculated as Same as runway.
- [Capital expenditure](https://lopifi.com/md/glossary/capital-expenditure): Cash spent acquiring or improving long-lived assets in the period — the investing outflow free cash flow subtracts
- [Prepaid expense](https://lopifi.com/md/glossary/prepaid-expense): Cash paid before the benefit is consumed — an asset until it is. "Prepayment" is the UK and IFRS word for the same asset; a customer paying us early is a customer advance or deposit, a liability
- [Stock-based compensation](https://lopifi.com/md/glossary/stock-based-compensation): The cost of equity awards — options, RSUs, restricted stock — measured at grant-date fair value and recognized as expense over the service period. Non-cash, so added back in operating cash flow, but a real cost
- [Default alive](https://lopifi.com/md/glossary/default-alive): Whether, with expenses held where they are and revenue growing at its recent rate, a company reaches profitability on the cash it already has. If not, it is default dead and its runway ends in a raise
- [Cost of revenue](https://lopifi.com/md/glossary/cost-of-revenue): The direct costs of producing the goods or delivering the services sold in the period — the line gross profit is measured after
- [Working capital](https://lopifi.com/md/glossary/working-capital): Working capital is a liquidity and working-capital metric, calculated as Current assets − Current liabilities.
- [Contribution margin](https://lopifi.com/md/glossary/contribution-margin): Contribution margin is a profitability metric, calculated as (Revenue − Variable costs) ÷ Revenue.
- [13-week cash flow](https://lopifi.com/md/glossary/13-week-cash-flow): A direct-method forecast of cash receipts and payments week by week for the next quarter, built from the bank balance, bills, payroll and tax dates and expected collections, and rolled forward every week
- [Direct method](https://lopifi.com/md/glossary/direct-method): Presenting operating cash flows as gross receipts and payments by major class — cash from customers, cash paid to suppliers and employees. Encouraged by ASC 230, but it must still be accompanied by the reconciliation from net income
- [Payroll liabilities](https://lopifi.com/md/glossary/payroll-liabilities): What an employer owes on wages it has already paid — the income tax and the employees' share of Social Security and Medicare withheld from their pay, plus the employer's own payroll taxes — until it is deposited with the government. The withheld part was never the employer's money: IRS Pub. 15 calls it trust fund taxes
- [Payment terms](https://lopifi.com/md/glossary/payment-terms): The agreed timing of payment and any early-payment discount — Net 30, Net 30 EOM, 2/10 net 30, due on receipt; the due date that aging is measured from
- [Dividend](https://lopifi.com/md/glossary/dividend): A distribution of earnings to shareholders, declared by the board — a liability from the declaration date and a reduction of retained earnings, never an expense
- [Forecast](https://lopifi.com/md/glossary/forecast): The current best estimate of a period's results or cash, revised as actuals arrive. A budget says what was planned; a forecast says what is now expected
- [Sales tax payable](https://lopifi.com/md/glossary/sales-tax-payable): Sales tax charged to customers and not yet remitted to the state — a liability from the moment it is collected, never revenue, when the entity has elected to exclude such taxes from the transaction price
- [Budget](https://lopifi.com/md/glossary/budget): The plan for a period, line by line, approved before the period starts and held fixed while it runs, so actual results can be measured against it. Built on the same basis as the books — an accrual budget for accrual books — or every variance is partly a basis difference
- [Variance](https://lopifi.com/md/glossary/variance): Actual less budget (or forecast) for one line, labeled favorable or unfavorable by the line's polarity: revenue above plan is favorable, a cost above plan is not. The sign is arithmetic; the label is the finding
- [Flexed budget](https://lopifi.com/md/glossary/flexed-budget): The budget restated at the volume actually achieved, so a variable cost is judged against what it should have been at actual sales. Separates "we sold less" from "each sale cost more"
- [Flux analysis](https://lopifi.com/md/glossary/flux-analysis): Explaining period-over-period variances
- [Materiality](https://lopifi.com/md/glossary/materiality): Whether a misstatement or omission would likely change the judgment of a reasonable user of the statements — judged on size and nature together, never a fixed percentage
- [Accrual basis](https://lopifi.com/md/glossary/accrual-basis): Recognizing revenue when earned and expense when incurred, regardless of when cash moves
- [Operating model](https://lopifi.com/md/glossary/operating-model): A forecast in which the income statement, balance sheet and cash flow statement are linked: profit flows to retained earnings, working-capital balances come from assumptions, and cash is derived from the cash flow — never typed — so the balance sheet balances by construction
- [Driver](https://lopifi.com/md/glossary/driver): An input assumption a forecast line is computed from — a growth rate, days of receivables, headcount, price — rather than typed. Changing a driver moves every line that depends on it
- [Cash flow statement](https://lopifi.com/md/glossary/cash-flow-statement): Where the cash went in a period — receipts and payments classified as operating, investing or financing, reconciling opening to closing cash, with operating cash also reconciled to net income
- [Retained earnings](https://lopifi.com/md/glossary/retained-earnings): Accumulated net income not distributed to owners — where the P&L lands on the balance sheet
- [Indirect method](https://lopifi.com/md/glossary/indirect-method): Presenting operating cash flows by starting from net income and adjusting for non-cash items and changes in working capital — the method most entities use. ASC 230 also calls it the reconciliation method
- [Deferred revenue](https://lopifi.com/md/glossary/deferred-revenue): Consideration received, or unconditionally due, before the goods or services are transferred — a liability until the performance obligation is satisfied. ASC 606 calls it a contract liability
- [Gross margin](https://lopifi.com/md/glossary/gross-margin): Gross margin is a profitability metric, calculated as (Revenue − COGS) ÷ Revenue.
- [ARR](https://lopifi.com/md/glossary/arr): ARR is a recurring-revenue metric, calculated as MRR × 12.
- [MRR](https://lopifi.com/md/glossary/mrr): MRR is a recurring-revenue metric, calculated as Sum of normalized monthly recurring subscription value.
- [Net revenue retention](https://lopifi.com/md/glossary/net-revenue-retention): Net revenue retention is a recurring-revenue metric, calculated as (Starting + Expansion − Contraction − Churn) ÷ Starting.
- [Gross revenue retention](https://lopifi.com/md/glossary/gross-revenue-retention): Gross revenue retention is a recurring-revenue metric, calculated as (Starting − Contraction − Churn) ÷ Starting.
- [CAC](https://lopifi.com/md/glossary/cac): CAC is a unit-economics metric, calculated as Sales & marketing spend ÷ new customers.
- [CAC payback](https://lopifi.com/md/glossary/cac-payback): CAC payback is a unit-economics metric, calculated as CAC ÷ (Monthly ARPA × Gross margin), in months.
- [Burn multiple](https://lopifi.com/md/glossary/burn-multiple): Burn multiple is a cash and runway metric, calculated as Net burn ÷ Net new ARR, over the same period.
- [Expansion MRR](https://lopifi.com/md/glossary/expansion-mrr): Expansion MRR is a recurring-revenue metric, calculated as Upgrades and seat additions from existing customers.
- [Contraction MRR](https://lopifi.com/md/glossary/contraction-mrr): Contraction MRR is a recurring-revenue metric, calculated as Downgrades, not cancellations.
- [Churned MRR](https://lopifi.com/md/glossary/churned-mrr): Churned MRR is a recurring-revenue metric, calculated as Full cancellations.
- [LTV](https://lopifi.com/md/glossary/ltv): LTV is a unit-economics metric, calculated as (ARPA × Gross margin) ÷ Revenue churn rate, both in the same period unit.
- [SAFE](https://lopifi.com/md/glossary/safe): Cash from an investor in exchange for a right to shares in a future priced round, usually at a valuation cap or a discount. Not debt and not yet stock; because a SAFE can require cash on a change of control, it is often classified as a liability under ASC 480 and remeasured at fair value — the terms decide
- [Liability](https://lopifi.com/md/glossary/liability): A present obligation of the entity to transfer an economic benefit (FASB CON 8 ¶E37)
- [Board pack](https://lopifi.com/md/glossary/board-pack): The set of statements, metrics and commentary delivered to the board or investors each month or quarter: the three statements, cash and runway, budget variances with explanations, and each metric with its definition, period and basis
- [Close](https://lopifi.com/md/glossary/close): The process of finalizing a period
- [Non-GAAP financial measure](https://lopifi.com/md/glossary/non-gaap-financial-measure): A numerical measure of performance, position or cash flow that adjusts a GAAP figure — EBITDA, free cash flow, adjusted net income. A registrant publishing one must reconcile it to the most comparable GAAP measure

- **Previous track:** [Accounting](https://lopifi.com/md/learn/accounting)
- **Next track:** [Cap tables & raising](https://lopifi.com/md/learn/equity)
- **The course:** https://lopifi.com/md/learn