Months of Cash: The One Number Every Owner Should Know

The formula

Monthly burn = Cash out − Cash in  |  Runway = Cash on hand ÷ Monthly burn

Three inputs, strictly defined. Cash on hand: money you can spend today — business checking and savings. Not receivables (promises with default risk), not inventory, not the credit line you hope stays open. Cash in / cash out: your actual average monthly flows from the last 3–6 bank statements — deposits received and payments made, which is a more honest picture than a P&L full of invoices that haven't been paid yet. If cash in exceeds cash out, you're cash-flow positive and runway isn't being consumed; the number to watch becomes how fast your cushion grows.

Worked example

A service business holds $45,000 in the bank. Over the last four months, deposits averaged $28,000/month and outflows $33,000/month — a burn of $5,000/month.

Runway = $45,000 ÷ $5,000 = 9 months.

Now watch the number do its real job — pricing decisions. The owner is considering a new truck at $1,500/month. New burn: $6,500. New runway: $45,000 ÷ $6,500 = 6.9 months. The truck costs $1,500 a month on paper, but what it actually costs is two months of survival distance. That's the translation runway provides for every hire, lease, and subscription: not "can we make the payment?" but "how much of the wall's distance does this consume?" Run your own numbers in the Cash Runway Calculator.

Reading the number

• Under 3 months: decisions start being made for you — which invoice to pay, which work to take regardless of margin. Cut burn and chase receivables now, while choices remain.
• 3–6 months: tight; one slow season or one big slow-paying customer reaches the danger zone. Not the moment to add fixed costs.
• 6–12 months: workable — most ordinary disruptions are absorbable without panic pricing.
• 12+ months: strong; you can afford strategy — hiring ahead of demand, declining bad work, riding out a competitor's price war.

These bands are planning heuristics, not published standards — the right cushion depends on how volatile your revenue is. A business whose monthly revenue swings 40% needs more runway than one on retainers.

Seasonal businesses: run it twice

Annual averages flatter seasonal operations. Run the calculation once with slow-season flows — that answer says whether you survive the season starting from today's cash — and once with annual averages for the structural picture. If slow-season runway is shorter than the slow season, the gap converts into a precise savings target for the busy months, which is far more actionable than a vague resolve to "put something aside."

The levers, in order of speed

1. Collect faster. Invoice the day work completes; follow up the day payment is late. Receivables are runway sitting in other people's accounts.
2. Cut discretionary burn. Every $1 of monthly burn removed adds runway at the current cash level — in the example, trimming $1,500/month of soft costs buys back the two months the truck cost.
3. Delay large outflows. Timing purchases against the cash curve is free runway.
4. Raise margin. Slower to land, permanent when it does — see the Price Increase Impact Calculator and your break-even number.
5. Borrow — carefully. Debt buys time at interest and adds burn. It works only if the time is used to fix the flow that made it necessary.

Where this math goes wrong

• Counting receivables or credit lines as cash — both have failed exactly when businesses needed them most.
• Using P&L profit instead of bank flows — profitable-on-paper businesses run out of cash routinely; the bank statement doesn't argue.
• Forgetting lumpy outflows — quarterly insurance, annual premiums, and tax payments must be spread into the monthly cash-out average or the runway reads long.
• Treating it as a forecast. Runway says how long the current pattern continues — it is a dashboard gauge, not a prophecy. Recompute monthly; the trend is the real signal.