Cash Runway: how many months you can survive without new sales

How to calculate it, what affects it, and when to start worrying

Imagine all sales stop tomorrow. Not because something went wrong — just hypothetically. How many months can your business keep operating on the cash you have in the bank right now?

If the answer comes immediately and confidently — you have good financial control. If you have to "do the math" or the answer is "probably three months, I'm not sure" — this article is for you.

Cash runway is one of the most important indicators of a business's financial health. Every startup raising investment knows it by heart. But most owners of profitable small businesses have never calculated it — and that's a mistake.

What Cash Runway is and why you should calculate it

Cash Runway is the number of months a business can keep operating on its existing cash reserves without any new revenue coming in.

The basic formula is simple:

Cash Runway = Cash on hand / Average monthly Cash Burn

Where Cash Burn is how much money the business spends every month on operations.

If you have 600,000 in the bank and monthly expenses of 120,000 — your runway is 5 months.

But in reality it's slightly more nuanced. And that "nuance" is exactly what makes the metric valuable.

Why know your runway:

First, it's an indicator of resilience. With 2 months of runway, any payment delay, seasonal dip, or unexpected expense becomes an existential threat. With 12 months, you have time to react, experiment, make mistakes, and correct them.

Second, runway defines your negotiating position. With investors, with the bank, with key suppliers. An owner with 18 months of runway negotiates very differently from one with 6 weeks left.

Third, runway is the only metric that gives an honest answer to "how critical is the situation." A P&L can show profit at zero runway. A Cash Flow statement can look fine if you ignore the burn rate trend.

How to calculate Cash Burn correctly

Cash Burn isn't just the "sum of expenses" from a report. There are several levels of calculation, and the difference matters.

Gross Burn vs Net Burn

Gross Burn — the total amount of cash a business spends each month, regardless of revenue.

Net Burn — the difference between expenses and incoming cash. If you spend 200,000 and receive 150,000 — net burn is 50,000 per month.

Runway is usually calculated using Net Burn — because if the business generates some revenue, that slows down the rate at which reserves are being burned.

But there's an important caveat: if your revenue is unstable or seasonal, don't rely on average net burn. Better to use a conservative calculation with lower inflows.

How to calculate the average burn rate

Don't take a single month — it may be atypical. Optimal: average over the last 3–6 months.

Month	Expenses	Inflows	Net Burn
October	380,000	310,000	70,000
November	420,000	290,000	130,000
December	510,000	480,000	30,000
Average	437,000	360,000	77,000

Average net burn = 77,000/month.

If you currently have 850,000 in the bank:

Cash Runway = 850,000 / 77,000 = 11 months

But notice: November showed a burn of 130,000 — almost twice December's. That could indicate seasonality, one-off expenses, or a deteriorating trend. Understanding the reasons behind volatility matters more than blindly taking an average.

What to include in expenses

Some owners understate their burn rate by "forgetting" certain line items. Here's the complete list of what should be included:

Required:

• Salaries for all employees (including payroll taxes)
• Rent and utilities
• Software subscriptions and licenses
• Payments to contractors and freelancers
• Marketing budget
• Loan payments (principal + interest)
• Taxes (income tax, simplified tax — depending on the system)

Often forgotten:

• The owner's own salary (if not paid formally — use market rate)
• Quarterly or annual payments (insurance, domains, equipment maintenance) — break down to monthly
• Reserves for unexpected expenses

Don't include:

• Depreciation (it's not a cash outflow)
• FX differences (if unrealized)

Three versions of runway: base, conservative, and stress

One runway figure is better than nothing. But three figures give you a real understanding of the situation.

Base case

Calculation based on average net burn from the last 3–6 months. Your "normal" picture.

Conservative case

Cut inflows by 30% and increase expenses by 10%. This simulates "clients paying slower while contractor prices have gone up."

Example for our company:

Inflows: 360,000 × 0.70 = 252,000
Expenses: 437,000 × 1.10 = 481,000
Conservative net burn: 229,000/month
Conservative runway: 850,000 / 229,000 = 3.7 months

From 11 months to 3.7 — and this isn't a catastrophic scenario, just "slightly worse than now."

Stress case

Inflows = 0 (full sales stop), expenses — current. This answers "how long do we last in the worst case."

Gross Burn: 437,000/month
Stress runway: 850,000 / 437,000 = 1.9 months

Less than two months is already critical for most businesses. Knowing this, an owner can decide to grow the reserve before a crisis hits.

What runway is considered normal

There's no single "right" value. But there are benchmarks to anchor on.

For startups raising investment:

• Critically low: < 6 months
• Acceptable: 12–18 months
• Comfortable: 18–24 months

Startups aim for 18+ months to have time for the next round: investor search takes 3–6 months, due diligence another 2–3. Letting it drop below 6 months means starting negotiations from a position of weakness.

For profitable small and mid-size businesses:

• Minimum: 3 months of operating expenses as a liquid reserve
• Normal: 4–6 months
• Good: 6–12 months

Three months is a "safety cushion" that lets you survive a seasonal dip, a major payment delay, or an unexpected expense without making crisis decisions.

When runway can be smaller:

• Subscription businesses (recurring contracts) — predictable cash flow reduces the need for a large reserve
• Businesses with a credit line or overdraft — but that's borrowed money you have to repay
• Seasonal businesses at peak season — runway is naturally smaller, but you need to plan for the off-season

Factors that quietly shrink your runway

Runway can "melt" even when the business looks fine. Here are the most common culprits.

Burn growth with stable revenue

You hired two new people, rented a bigger office, signed up for a few new services. Each decision looked reasonable on its own. Together, the burn rate grew 25% in a quarter while revenue stayed flat.

What to do: track gross burn separately from net burn every month. If gross burn keeps rising, that needs an explanation and a deliberate decision — not a passive "that's just how it ended up."

Revenue drop without expense cuts

A client left, a project closed, a sales channel stopped working. Revenue fell 30%, but expenses only 10%, because part of the contracts and salaries are fixed.

What to do: in your cost structure, understand which portion is fixed (independent of revenue) and which is variable. The higher the fixed-cost share, the faster runway falls when revenue drops.

Cash frozen in inventory or receivables

You have 200,000 in the bank, but clients owe another 800,000 and the warehouse holds 500,000 in inventory. Technically these are assets. But for runway, only liquid cash — what's actually accessible right now — matters.

What to do: calculate runway only from cash you can really access. Don't include receivables older than 60 days or doubtful ones.

Ignoring future large expenses

Next month — quarterly rent. The month after — a loan installment. The month after that — a big invoice from a contractor. Calculating runway from the current balance without accounting for these payments gives a falsely optimistic picture.

What to do: use a 13-week payment calendar. It will show you the real "minimum balance" in the coming months — and that's what you should base runway on.

How to extend runway: practical levers

If runway turns out to be lower than comfortable, there are two paths: reduce burn or grow the reserve.

Reducing burn rate

Audit subscriptions and services. Collect all recurring payments: SaaS tools, licenses, cloud services. How many are actually used? In practice, 20–30% of subscriptions in most companies are either unused or duplicate each other.

Review contractors. Which services can be temporarily cut without critical impact? Marketing agencies, consultants, trainers — these are flexible expenses you can reduce quickly.

Defer non-priority spending. Not cancel — defer for several months. It doesn't solve the problem, but it buys time.

Renegotiate supplier terms. Extending payment terms from 30 to 60 days is essentially interest-free financing. If your business matters to the supplier, there's a chance to agree.

Growing the liquid reserve

Accelerate inflows. Calls to clients with overdue receivables, an early-payment discount (1–2% is cheaper than overdraft), switching new clients to prepayment.

Credit line or overdraft. Open it when things are normal — not when runway is already critical. Banks happily extend credit to a company with strong financial reporting, and very reluctantly to a company in crisis.

Sell illiquid assets. Unused equipment, excess inventory, real estate — anything that can be converted to cash without critical impact on operations.

When to start worrying: four alert levels

Instead of reacting to a crisis, it's better to have predefined action thresholds.

🟢 Green (runway > 9 months). Comfort zone. Monitor the metric monthly, watch the burn rate trend. No urgent action needed.

🟡 Yellow (runway 6–9 months). Time to look more carefully at the cost structure. Review subscriptions, assess whether there's "fat" in the budget that can be trimmed painlessly. Start thinking about backup financing.

🟠 Orange (runway 3–6 months). Active steps. Launch receivables work, open a credit line (if you haven't), renegotiate supplier terms. In parallel — analyze causes: why did runway shrink?

🔴 Red (runway < 3 months). Crisis mode. Prioritize spending: what's absolutely critical (payroll, rent, key suppliers), what can be deferred. Active funding search. Possibly — debt restructuring negotiations.

The key principle: transitions between levels should happen based on forecast, not fact. If your payment calendar shows runway will drop into the red zone in 8 weeks — act now, not then.

Runway and P&L: why one report isn't enough

Finally — the most important part.

A P&L can show excellent profit while runway is critically low. This happens when:

• Large unpaid receivables (revenue recognized, cash not received)
• Significant inventory (goods bought but not sold, expenses already incurred)
• Fast growth (revenue rising, but cash "frozen" in the operating cycle)

An owner who looks only at P&L can have a false sense of safety. Runway is a complement to P&L that shows the real liquidity picture.

Best practice: three numbers on one sheet that the owner checks every month:

1. EBITDA (operating efficiency)
2. Net Cash Flow (real cash movement)
3. Cash Runway (resilience)

If all three look healthy — the business is healthy. If EBITDA is good but runway is falling — there's a liquidity problem to dig into. If runway is fine but EBITDA is negative — the business is "eating" reserves, which is also a signal.

Summary: what to do this week

If you've never calculated your runway, here are the minimum steps:

1. Sum balances across all accounts (current, deposit, petty cash) — your numerator.
2. Calculate average net burn over the last 3 months — your denominator.
3. Divide the first by the second — that's your base runway.
4. Run a conservative scenario: cut inflows by 30%, increase expenses by 10%.
5. Compare against the benchmarks above and determine which "alert level" you're at.

It will take 30–60 minutes. And it will answer a question most owners avoid — but one worth knowing at all times.

Next article in the series — "How to calculate Working Capital and why."