Cash runway: how long the money lasts

Cash runway is how many months you can keep operating on the money you have. It is the single number that determines how much time a decision has, and it is routinely calculated in a way that flatters: a closing bank balance divided by last month's costs produces a figure that feels reassuring and ignores most of what is actually coming.

Calculating cash runway honestly

• Start from cash actually available, excluding money earmarked for tax that is simply sitting in the same account.
• Use net burn — cash out minus cash in — rather than total costs, unless you genuinely have no revenue.
• Average over three months rather than using the last one, since a quiet month produces an optimistic figure.
• Include everything annual and lumpy: insurance renewals, audit fees, software contracts, tax payments on their actual dates.
• Treat an overdraft or undrawn facility as separate rather than as runway, since facilities are withdrawn precisely when they are needed.

The costs people forget

Tax is the main one — amounts collected on behalf of an authority and held in the business account look like cash and are not. After that: annual subscriptions that renew on a date nobody tracks, redundancy or notice costs if the answer to a short runway is reducing headcount, and the simple fact that collecting what you are owed takes longer when things are difficult. The honest version assumes your own debtors slow down at the same time your cash does, because that correlation is real.

Calculate the date rather than the number of months. «Fourteen weeks» is abstract; «we run out on the ninth of March» changes behaviour, and it also makes obvious which commitments fall on the wrong side of it.

What to do when it shortens

1. Recalculate weekly rather than monthly once runway is under six months, because the figure moves faster than the reporting cycle.
2. Separate decisions that take effect immediately from those that take a quarter, and act on the slow ones first.
3. Collect harder before cutting, since the money owed to you is cheaper to recover than costs are to remove.
4. Talk to suppliers early — terms are negotiable while you are paying and not afterwards.
5. Know your own minimum operating balance, below which the business cannot function, and treat that as zero rather than treating zero as zero.

Ettex Sheets holds the working — opening cash, monthly in and out, the lumpy items on their dates — which turns runway into a date that updates rather than an estimate somebody redoes under pressure. What customers owe is half of the input, and the ageing report is where that half is either reliable or not.