Cash runway: use net cash burn, not accounting profit
Calculate a constant-burn scenario from collected receipts, cash payments and available cash, then check what the average leaves out.
Method
Cash runway asks how long an available cash balance would last under a stated rate of cash use. It does not start with accounting profit. An unpaid customer invoice can contribute to reported revenue without providing cash today. Use collected operating receipts and actual cash payments, in one currency, over matching periods. Available cash should exclude amounts you cannot use; inventory and an unreceived loan are not cash in the bank.
Monthly net burn is monthly cash payments minus monthly operating receipts. When that difference is positive, divide available cash by net burn to obtain months. This simple model holds the monthly averages constant and uses the balance down to zero. If receipts equal or exceed payments, the calculator does not produce a finite burn runway; that does not establish permanent financial security.
- Available cash90,000
- Monthly net cash burn18,000 − 12,000 = 6,000
- Runway to a zero balance90,000 ÷ 6,000 = 15 months
All money amounts use one currency. Receipts and payments are monthly; the averages are held constant.
Worked example
Consider 90,000 of available cash, monthly receipts of 12,000 and payments of 18,000. Net burn is 6,000 per month, so the model gives 15 months. As a historical cross-check, a balance falling from 114,000 to 90,000 over four months decreased by an average of 6,000 per month, provided no separate financing or exceptional flows altered that comparison.
In Cash runway, enter cash 90,000, monthly cash revenue 12,000 and monthly cash costs 18,000. In Business burn rate, use starting cash 114,000, ending cash 90,000 and four months with the same receipts and payments. The observed decrease and operating net burn both equal 6,000. If monthly payments instead become 21,000, net burn becomes 9,000 and runway becomes 10 months; this is a changed assumption, not a forecast.
18,000 − 12,000 = 6,000
90,000 ÷ 6,000 = 15
(114,000 − 90,000) ÷ 4 = 6,000
90,000 ÷ (21,000 − 12,000) = 10
- Payments: 18,000 per month
- 15 months
- Payments: 21,000 per month
- 10 months
Cash stays at 90,000 and monthly receipts at 12,000. Only monthly payments change; these are hypothetical cases.
Checks and limits
A 20,000 loan received during the historical period would instead leave 110,000, making the observed average decrease 1,000 per month despite the same operating burn. Separate financing, equipment purchases and other exceptional movements before interpreting the figures. Payment dates, seasonal receipts and a required minimum balance also matter. Use a dated cash schedule alongside the average; the calculation cannot promise that every bill can be paid for the stated number of months.