Cash runway
How long you last at the current rate, and the reason the honest version of this number is so much shorter than the flattering one.
Also called Runway, Months of cash, Survival horizon.
What it is
Cash runway is how long the business can operate before it runs out of money, given what it holds and what it spends. It is the single most consequential figure a small business computes, and it is routinely computed on a balance that includes money belonging to other people.
cash available ÷ net burn per period
- cash available
- Bank balance minus client deposits, tax collected and other money held on behalf of others
- net burn
- Cash out minus cash in, over a period long enough to be representative
The part the formula leaves out
The bank balance is not the cash available. Client deposits for costs not yet incurred, and sales tax collected and not yet remitted, sit in the same account as your own money and are indistinguishable from it. Separating them in the worked example takes runway from eleven weeks to 6.4, and that difference is larger than the overdraft that prompted the analysis.
Averaging burn hides the shape. A business with lumpy income and a quarterly tax bill does not run out on the day the average says it will; it runs out on the specific day a large payment leaves before a large receipt arrives. A monthly forecast is a forecast of the one day a month you happen to look at.
And committed is not the same as expected. Invoices already issued and recurring costs already contracted are known. Everything beyond that is an assumption, and blending the two into one line produces a chart where the reliable part and the guess look identical.
How it is usually computed wrongly
01
Using the bank balance as cash available
It includes tax you are holding and deposits you owe back. Spending against them works right up until the quarter ends.
Subtract every liability already sitting in the balance and report the two figures side by side, so the size of the correction is visible.
02
Forecasting monthly instead of daily
The month-end balance can be healthy in a month that went below zero on the 14th. Overdraft fees and bounced payments happen on days, not months.
Project a daily balance and name the dates you go under. That is the output somebody can act on.
03
Assuming invoices are paid on terms
Terms describe the agreement. A forecast built on them is a forecast of a business you do not have, and it is optimistic by exactly the size of your collections problem.
Build the forecast on each client's own measured payment distribution, and keep the terms-based version beside it as the comparison.
04
Treating a one-off receipt as run rate
A single large payment inflates the trailing average and extends apparent runway for months after the money has been spent.
Separate recurring from one-off before averaging anything, and show the runway both with and without the exceptional items.
What your file needs
- Bank statements covering enough history to see the seasonal shape
- Outstanding invoices with dates and amounts
- Known upcoming commitments: payroll, tax, rent, renewals
Anything missing is reported as unavailable rather than substituted with something weaker computed on worse evidence.
Compute it on your own file
No account needed to start. You only pay when you like what you see.