Estimate your cash runway by dividing available cash by monthly net burn. Then put known hires, annual bills and customer changes on a calendar. In the example below, today's rate suggests mid-May, but known changes move the cash-out month to April and a lost customer moves it to March.
Calculate it now: the cash runway calculator gives the quick estimate from your cash and burn.
What does cash divided by burn leave out?
Cash divided by monthly net burn gives runway in months, but it ignores every change you already know is coming. Take a nine-person software company on 1 October. It has €180,000 in the bank, pays out €52,000 a month and collects €28,000 from customers. That is €24,000 of net burn, and the division says 7.5 months of runway:
runway = cash / net burn = 180,000 / 24,000 = 7.5 months
Seven and a half months from 1 October is mid-May. These are the same numbers the calculator linked above opens with, and for a quick answer that is all you need.
The founder also knows four things the division ignores:
- A developer has signed and starts in November. With employer costs, that is €7,000 a month.
- €9,000 of annual renewals (insurance and two software plans) is due in January.
- New monthly revenue has grown by about €1,000 a month over the last quarter.
- A customer paying €5,000 a month has said its February renewal is "under review".
Three of those make the date earlier and one makes it later. The division cannot tell you which effect wins.
If the profit on your monthly statement looks healthier than your bank balance, the cash view and the accrual view of one quarter shows why.
How do you find the month you run out of cash?
To find the month you run out of cash, write one row per month and change costs when the hire starts and when the renewals land. Revenue grows by the recent average, and nothing else is assumed. Cash at month end is the previous balance plus cash in minus cash out.
| Month | Cash out | Cash in | Change | Cash at month end |
|---|---|---|---|---|
| October | €52,000 | €28,000 | -€24,000 | €156,000 |
| November | €59,000 | €29,000 | -€30,000 | €126,000 |
| December | €59,000 | €30,000 | -€29,000 | €97,000 |
| January | €68,000 | €31,000 | -€37,000 | €60,000 |
| February | €59,000 | €32,000 | -€27,000 | €33,000 |
| March | €59,000 | €33,000 | -€26,000 | €7,000 |
| April | €59,000 | €34,000 | -€25,000 | -€18,000 |
Growth helps, and the money still runs out in April instead of mid-May. The new hire adds €7,000 a month from November, and revenue growth only catches up with that in May, by which point the cash is already gone.
Now run the same table assuming the €5,000 customer leaves in February. February ends at €28,000 and March at -€3,000, so the downside date is March.
Three dates for the same company
The same company has three run-out dates depending on the method: mid-May from cash divided by today's burn, April from a calendar with known changes, and March from a calendar that also loses the at-risk customer. The table puts them side by side.
| Method | Out of cash |
|---|---|
| Cash divided by today's burn | Mid-May |
| Calendar with known changes | April |
| Calendar, with the at-risk customer lost | March |
Plan around the last line. The middle one is what happens if nothing goes wrong.
When do you actually run out of cash?
You do not run out of cash on the day the balance reaches zero. You run out on the payday when there is not enough in the account to cover salaries. So set a floor, say one month of costs, and find the month your balance drops below it. Here the floor is about €59,000, and the calendar case goes under it at the end of February.
Then count backwards for whatever you plan to do about it. NYU's entrepreneurship team puts the time to raise a round at about six months. Six months before February is August, which has already passed. This company should have started raising before the division said anything was wrong.
That is why Paul Graham, in The Fatal Pinch, describes companies with "6 months of runway" as six months from going out of business: they are counting on a raise that might not close in time. His advice in Default Alive or Default Dead? is to write down exactly what you will do if you cannot raise, and exactly when you will switch to it.
How long a round should buy is its own sum: how much runway a round should buy.
For this company, plan B has an obvious first step. If the November hire is postponed, the calendar case runs out in June instead of April. That is two more months, bought with one difficult conversation, and the founder should know that before the developer's first day.
What mistakes move your run-out date?
A run-out date is wrong when it relies on averages. Annual bills, quarterly tax payments and a hire's start date all land in specific months, and a three-month average spreads them out until they disappear. Three more mistakes follow: treating invoices as cash, counting money that is not yours, and using gross salaries.
Invoices are not cash. A customer who owes you €20,000 on 60-day terms adds nothing to this table until the money arrives, and if they are late the table is wrong. If invoicing is the reason cash is tight, cash flow problems in a growing business goes through that case.
A big account is the other average that hides a date. The date if your biggest customer leaves is worth working out before their renewal, as the calendar case above does for the €5,000 customer.
Some cash in your account is not yours. VAT or sales tax you collected is owed to the tax office on a set date. Take it out of the starting balance, or add the payment as a cost in the month it is due.
Salaries are not what people cost. If the table uses gross salaries, every month is understated by the employer taxes and contributions on top. Use what a hire really costs as the monthly figure.
What to do this week
Build the calendar once, with every change you already know about, and write down all three dates. If the downside date minus the time you need to raise or cut is already in the past, the decisions are urgent. Postpone anything that has not started, like the November hire here, then decide between raising, cutting costs and growing faster.
If the dates are comfortable, check whether you are default alive. That tells you whether you need the next round at all.
Plainhub keeps the division current as you record what happens, and its Plans page puts today's runway and cash-out date next to each decision you are weighing, such as a hire, a new tool or a cut. A committed hire only starts counting from its start date, and marking a customer as at risk takes their revenue out of the runway straight away, which gives you the downside case. It works from today's burn, though, so it does not project revenue growth or a January renewal month by month. When big dated changes are coming, the calendar above is still worth an hour. For the everyday questions, you can ask your own numbers instead of rebuilding a sheet.