How to calculate cash runway and recognize its limits

Identify available cash

Use cash that the business can actually spend. Exclude restricted balances and do not count an unapproved loan as money already available. Decide whether a minimum reserve is protected: if 30,000 is in the bank but 5,000 must remain untouched, model only 25,000 as available cash.

Calculate net monthly burn

Suppose available cash is 30,000, monthly receipts are 8,000 and monthly payments are 13,000. Net burn is 13,000 − 8,000 = 5,000. Dividing 30,000 by 5,000 gives six months. Using the 25,000 reserve-adjusted amount instead gives five months. These estimates assume the same monthly pattern continues.

Separate operating expenses from cash movements

Include actual cash payments such as debt principal, tax payments and equipment purchases in the period they occur. Depreciation may reduce accounting profit without using cash that month. Conversely, a large inventory purchase can consume cash before the related goods are sold. A profit figure cannot replace the cash schedule.

Handle a cash-generating business

When monthly receipts cover payments, the simple formula has no finite depletion time. That does not prove the business is safe indefinitely. A delayed customer payment, seasonal demand drop or exceptional expense may still create a shortfall. Review the lowest projected balance, not only an average month.

Use a dated schedule for decisions

A 2.5-month result is a rough duration, not a predicted failure date. Payments within a month may create a shortfall sooner. For decisions about hiring, purchasing or fundraising, build a dated cash schedule with conservative receipts and explicit one-off payments, then compare the minimum cash balance with the required reserve.

Stress-test the largest cash assumptions

Start with the six-month example, then delay or reduce receipts. If monthly receipts fall from 8,000 to 6,000 while payments remain 13,000, burn rises to 7,000 and 30,000 cash lasts about 4.29 months. If receipts remain 8,000 but payments rise to 15,000, the same burn and runway result follow.

Those scenarios have different operational causes even though the formula produces the same answer. Identify which payments can be postponed or reduced and which receipts have reliable due dates. Do not count a possible investment as committed funding.

Place exceptional payments on a timeline

A steady-burn calculation spreads reality into an average month. Suppose the business also needs an immediate 10,000 equipment payment. After paying it, available cash falls from 30,000 to 20,000. At a continuing 5,000 monthly burn, the remaining estimate is four months.

If that payment instead falls several months later, create a dated schedule. Simply increasing average monthly expenses can hide the point at which cash drops below a required reserve. Weekly detail may be useful when payroll, supplier payments and receipts fall close together.

Define the trigger for action

A runway result becomes useful when linked to a decision date and a response. If a financing process, cost change or sales initiative takes time, the business needs to act before cash reaches zero. The required lead time depends on its own circumstances; this calculator cannot set a universal safe threshold.

At each review, reconcile opening cash plus receipts minus payments to closing cash. Then update the forward schedule, retain the previous forecast and explain changes. The goal is to identify a funding gap early enough to evaluate options, not to predict an exact day of failure.

Try the numbers yourself

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