What is cash runway?

Cash runway is how long a business can keep operating before it runs out of cash if nothing changes. It is usually calculated as available cash divided by net monthly cash burn, and stated in months.

How it is calculated

Net burn = cash paid out per month - cash received per month

Runway (months) = available cash / net burn

Runway only applies when a business is spending more cash than it brings in. If receipts cover payments, there is no runway to measure, and the question becomes whether cash dips below the minimum in a bad week.

How it is used

Runway tells owners and boards how much time they have to raise money, cut costs or reach break-even. Startups and businesses in a downturn track it monthly. A 13-week cash forecast gives a more detailed answer for the next quarter, because it shows the exact week cash gets tight.

Worked example

ItemAmount
Cash in the bank$240,000
Monthly payments$95,000
Monthly receipts$75,000
Net burn$20,000
Runway: $240,000 / $20,00012 months
Runway above a $60,000 minimum: $180,000 / $20,0009 months

The second figure is the honest one. The business can't operate at a zero balance, so the usable runway is 9 months, not 12.

Common mistakes

  • Using gross burn. $240,000 / $95,000 says 2.5 months, which ignores all the money coming in.
  • Using the P&L loss. Depreciation is not cash, and loan principal and equipment purchases are cash but not expenses.
  • Assuming burn stays flat. Planned hires, seasonal sales and price changes all move it.
  • Counting an undrawn credit line as cash without saying so.

Related terms

  • Minimum cash balance: A minimum cash balance is the lowest bank balance a business agrees it should hold at any point, so it can cover payroll and bills through the gaps between customer payments.
  • 13-week cash flow forecast: A 13-week cash flow forecast is a week-by-week projection of the cash coming in and going out of a business over the next quarter, starting from today's bank balance.
  • Forecast vs actual: Forecast vs actual is the comparison of what a forecast said would happen with what actually happened over the same period, line by line.

Further reading