Part of our complete guide to small business numbers.
The calculation
Cash runway equals your current cash balance divided by your average monthly burn rate, the net amount you're spending beyond what's coming in each month. If you have £60,000 in the bank and you're burning £5,000 a month more than you bring in, your runway is 12 months. At today's trajectory, that's how long you have before the account hits zero.
Key point: Burn rate should be based on net cash movement, not profit and loss. A business can show an accounting profit while still burning cash, if customers pay slowly, if stock is bought well ahead of being sold, or if a large tax bill lands. Runway tracks real cash survival, not the profit figure on your accounts.
Why profitable businesses still need to track this
It's a common and dangerous assumption that a profitable business doesn't need to think about runway. Profit is an accounting concept, cash is a bank balance, and the two can diverge significantly in the short term. A business growing fast, taking on stock or staff ahead of revenue catching up, can be genuinely profitable on paper and still run out of cash if nobody's tracking the actual bank balance trajectory.
What a declining runway should trigger
- Review spending for anything deferrable, not necessarily cutting everything, but identifying what could wait if the runway number is tightening
- Chase receivables harder, slow-paying customers directly extend how long your cash is tied up before it becomes usable cash
- Look at the timing of upcoming known costs, a tax bill, a renewal, a seasonal dip, these can compress runway suddenly even if the month-to-month burn rate looks stable
- Decide early whether you need to raise, borrow, or cut, runway gives you the lead time to make that decision calmly rather than in a crisis
Keeping the number current
Burn rate isn't static, a new hire, a big customer win, a seasonal quiet patch, all shift it meaningfully. Recalculating runway as a fixed part of your monthly bookkeeping review, rather than only when things feel tight, means you see a tightening trend early, while there's still time to act on it.
Want your real runway calculated properly? Try our cash runway calculator, or book a free consultation as part of our bookkeeping service for ongoing monthly tracking.
Frequently asked questions
What is cash runway?
Cash runway is the number of months a business can continue operating at its current burn rate before running out of cash, calculated as current cash balance divided by average monthly net cash outflow.
What is burn rate?
Burn rate is how much cash a business spends, net of any income, each month. A business losing £5,000 more than it brings in each month has a burn rate of £5,000, regardless of its revenue or profit figures on paper.
Why does cash runway matter even for a profitable business?
Profit on paper and cash in the bank aren't the same thing, a profitable business with slow-paying customers or large upfront stock costs can still run out of cash, so runway tracks actual survival time, not accounting profit.
How often should I recalculate my cash runway?
Monthly, as part of your regular bookkeeping review, since burn rate can shift quickly with a new hire, a big customer win, or a seasonal dip, and a stale runway figure gives false confidence.