How to Calculate Business Runway from Available Cash

Use cash, not accounting profit

An invoice increases billed revenue before it necessarily brings in cash. Equipment purchases can consume cash at once while their accounting expense follows a different schedule. Runway is concerned with the payment dates.

Choose a consistent scope. Business-only runway includes business inflows and outflows. A combined household-and-business model also includes household support, but should not count both an owner's draw and every household bill funded by that same draw.

List one-time and recurring cash costs separately. The SBA's planning guidance uses this distinction in startup cost preparation.

Calculate the money actually available

Start from cleared bank cash. Remove amounts committed to taxes, imminent unpaid bills, customer obligations, or protected reserves if those amounts are outside the forecast. When a bill is deducted upfront, do not deduct it again in the same schedule.

Receivables belong in a collection forecast. An undrawn line of credit belongs in a financing scenario, with costs and repayment modeled. Neither is already cash in the bank.

Worked example: two runway measures

Suppose bank cash is $40,000. Of that, $7,000 is a tax reserve and $3,000 is needed for setup payments excluded from the monthly model. Available cash is $30,000.

Monthly operating cash payments are $9,000, including the planned owner transfer. Expected collections are $5,000. Net burn is $9,000 − $5,000 = $4,000 per month.

The three answers are all valid for their assumptions. State which one you are using rather than reporting a single unexplained runway number.

Interpret zero or negative burn correctly

If receipts equal outflows, the simple model has no cash decline. If receipts exceed outflows, it has a surplus. Reporting “infinite runway” can conceal uncertainty about future clients, payment timing, taxes, or annual renewals.

In either case, build a forward cash schedule and identify the lowest balance. A cash-positive month may still contain a week where payroll or a supplier payment comes before collections.

Turn the result into an operating decision

Run a base case, a slower-collection case, and a loss-of-revenue case. Use plausible assumptions drawn from the business rather than adding an arbitrary percentage for safety.

Record an action floor and what happens when the forecast crosses it. A number without an associated decision is harder to use. Revisit the plan when a major invoice is delayed, a contract changes, or costs increase.

Keep emergency savings visible if household reserves are excluded. Documenting the boundary prevents an apparently healthy business runway from depending on money already assigned to personal emergencies.