Working it out
- Cash. Money you can use now. Use your available cash if you have worked it out.
- Cash out. Monthly average over the last three months. Include your own pay and tax. Spread yearly costs over twelve months.
- Cash in. Monthly average of money received, not invoiced.
- Net burn. Cash out minus cash in.
- Runway. Cash divided by net burn.
Not losing cash? Then there is no runway figure. Use the stress test below.
An illustration
The figures are invented to show the arithmetic. They are not what any business should expect.
| Cash | R300 000 |
| Cash out each month, including R25 000 for yourself | R100 000 |
| Cash in each month | R75 000 |
| Net burn | R25 000 |
| Runway | 12 months |
The stress test: what if sales stopped?
Use fixed costs only: rent, salaries, your own pay, loan repayments.
If those are R75 000 a month, R300 000 lasts 4 months.
The gap between 12 and 4 months shows how much of your runway depends on customers paying.
Read it against your own situation
- Last month. Is your runway growing or shrinking?
- Your plan. Is it what you expected when you started?
- Your fixes. How long would each one take?
- Collecting what customers owe you
- Cutting costs
- Raising money
- Winning new sales
If your slowest fix takes longer than your runway, the number needs attention now.
What a change could be revealing
| The signal | It could be revealing | Check | You could |
|---|---|---|---|
| Drops by months in one month | A one-off payment (insurance, tax, stock), or a late customer | Payments that month larger than usual | Set money aside monthly for one-offs. If a customer is late, see debtor days |
| Shortens a little each month | Costs creeping up, sales slipping, margin falling, or slower payers | Three months, line by line | Tackle the biggest mover first |
| Long, but costs are not covered | Savings or a loan is covering the losses | Cash in against break-even | Set a date to cover costs and work back from it |
| Long, but you take no pay | Your own time is funding the business | Does cash out include your pay? | Add the pay you need and recalculate |
| No burn, so no figure | Making money, or holding deposits, unpaid bills or tax owed | Deposits, bills and tax owed | Use the stress test, after taking out other people's money |
Try it
Use the runway calculator, or work through the five steps with three months of bank statements. It takes about ten minutes.
Questions people ask
Should I include my own pay?
Yes. Without it, your runway looks longer than it is.
My income changes each month. What then?
Use the three-month average. Then repeat with your weakest month and compare the two answers.
What is a good runway?
There is no single figure. Compare it with how long your slowest fix would take.