Cash Flow Runway Calculator: How Many Months Can Your Business Last?

Cash runway is the number of months your business can keep operating before cash runs out, and the formula is simple: cash on hand divided by net monthly burn. A business with $48,000 in the bank that spends $22,000 a month and brings in $14,000 has a net burn of $8,000 and a runway of six months. Profit on paper does not guarantee cash in the bank, which is why runway is one of the most useful numbers to check before you hire, borrow or buy equipment.

Key terms

Cash on hand: money in your business bank accounts that you can actually spend, not including tax money you are holding for payment or customer deposits you owe back.
Gross burn: total cash spent per month on all operating costs, including loan payments and owner draws.
Net burn: gross burn minus cash collected from customers in the month. If you collect more than you spend, you have positive cash flow and no burn.
Runway (months): cash on hand / net burn.

Worked example (illustrative)

A design studio has:

Cash in the bank: $48,000
Monthly cash costs: $22,000 (rent $3,500, payroll and taxes $12,000, software and insurance $1,500, loan payment $1,800, owner draw $3,200)
Average monthly cash collected: $14,000 over recent months

Net burn = $22,000 - $14,000 = $8,000. Runway = $48,000 / $8,000 = 6.0 months.

If the studio cuts the owner draw by $1,200 and wins a project worth $3,000 a month, net burn falls to $8,000 - $1,200 - $3,000 = $3,800 and runway rises to $48,000 / $3,800 = 12.6 months. Small changes in net burn have a large effect on runway because the number is a ratio.

Why profit and cash differ

Your profit and loss statement and your bank account can tell different stories. Common reasons:

Unpaid invoices: you recorded the sale but have not been paid. If customers pay in 45 days and your costs are due in 30, you finance the gap.
Loan principal: repaying principal does not appear as an expense on the profit and loss statement but reduces cash.
Inventory purchases: buying stock reduces cash before it produces revenue.
Equipment purchases and taxes: large one-time payments hit cash immediately even if depreciation spreads the cost over time.
Owner draws: money you take out is not an expense, but it is not available for the business.

If you use accrual accounting, build your runway from cash collected and cash spent, not from your income statement alone.

Step-by-step: calculate your runway

Pull the last three to six months of bank activity and sort inflows and outflows into categories.
Calculate average monthly cash collected from customers. Use a median or exclude one-off windfalls.
Calculate average monthly cash spent, including loan payments, taxes and your own draw.
Subtract to find net burn. If you are positive, test a cautious scenario with lower sales.
Divide cash on hand by net burn.
Repeat for a cautious scenario with sales 25% lower and costs 5% higher.

In the studio example, a cautious scenario of $10,500 collected (25% lower) and $23,100 spent (5% higher) gives net burn of $12,600 and runway of 3.8 months. If a 25% sales dip is plausible, the studio has under four months of safety, not six.

A 13-week cash flow forecast

Runway is a snapshot. For a more detailed view, build a 13-week forecast in a spreadsheet:

List the next 13 weeks across the top.
Start with opening cash for week one.
Add expected cash receipts, based on when invoices will actually be paid.
Subtract expected payments by week: payroll dates, rent, loan payments, tax deposits, supplier bills and owner draws.
Calculate ending cash each week, which becomes the opening cash for the next week.
Update weekly, replacing the forecast with actuals.

A forecast shows low points that a monthly average hides. A studio might have a healthy average runway yet face a week in which payroll and a quarterly tax payment land before a large customer pays. Seeing it six weeks early gives you time to arrange a line of credit, ask for a deposit or delay a purchase.

How much runway should you keep?

There is no universal answer. Many advisors suggest three to six months of operating expenses for stable businesses, and more for seasonal, project-based or early-stage ones. A business with predictable recurring revenue can survive on less; one that depends on a few large customers should hold more. Consider your industry, your debt payments and how quickly you could cut costs.

Ways to extend your runway

Collect faster: invoice promptly, require deposits, shorten payment terms, offer easy online payment and follow up on late invoices before they get old.
Pay strategically: negotiate longer supplier terms, but do not pay late if it triggers penalties or damages relationships.
Cut or pause non-essential costs: review subscriptions, insurance, vendor contracts and unused space.
Raise prices if margins allow. See the margin guide.
Reduce owner draws temporarily or switch to a variable draw tied to cash collected.
Arrange financing before you need it, because lenders prefer to lend when your numbers look strong. Compare options on the compare page and calculate costs with the loan calculator.
Hold back tax money so a quarterly bill does not cause a crunch. See the self-employment tax guide.

Using runway to make decisions

Before a big decision, rerun runway with the new numbers:

A new hire with a total monthly cost of $4,600 raises net burn by that amount until the employee generates revenue. In the studio example, runway drops from 6.0 months to $48,000 / $12,600 = 3.8 months.
An equipment loan adds a payment but may cut costs or lift revenue. Check the cautious case.
A price increase raises collected cash per sale and may cut volume. Test both.
A slow season can be modeled by reducing collected cash for the months you expect it.

If a decision pushes runway under your minimum, either reduce its size, phase it in or arrange backup funding first.

Mistakes to avoid

Using revenue instead of collected cash.
Counting money owed to others (taxes, deposits, sales tax collected) as available cash.
Forgetting annual bills such as insurance, licenses or property tax that arrive in lumps.
Using only the best month as the baseline.
Waiting until runway is under two months to act.

When to seek help

If runway is short and falling, talk early with your accountant, your bank and a nonprofit advisor such as a Small Business Development Center. Lenders and landlords are more flexible when you contact them before you miss a payment.

Frequently asked questions

Is runway the same as profit?

No. A profitable business can run out of cash because of timing, loan repayments, inventory and taxes.

What if I am cash positive?

Then you have no net burn. Still run a cautious scenario, because a customer loss or seasonal drop could change that quickly.

Should I include my line of credit as cash?

Count it separately. It is borrowed money with a cost, and lenders can reduce or freeze credit lines.

How often should I update runway?

Monthly at minimum, and weekly if runway is under three months.

Sources

U.S. Small Business Administration — managing cash flow and finding local advisors
SCORE — free mentoring and cash flow templates
Internal Revenue Service — tax deposit and payment schedules that affect cash planning