Cash Runway Explained - How to Model Without a CFO
(Simple Guide for Founders)

Running out of cash is the number one reason startups and businesses fail.​

 

​Cash runway, how long your business can survive based on short term forecasted spend level, is often misunderstood.​

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The good news? You don’t need an all singing all dancing financial model to generate an extremely useful illustration of runway.

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What is Cash Runway!?

The number of months you can operate before your current cash runs out.​

Very basic formula:

Cash available ÷ Monthly burn = Runway (months)​

E.g. £50,000 in the bank, £5,000 a month net outflow = 10 months runway

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Why it Matters!

Clarity – Know exactly how much time you’ve got to launch, convert new (paying) clients/customers, pivot to new markets, raise funds or cut costs

Investor/Bank/Funder Relations – Funders will always ask ‘what’s your runway?’

Decisions, Decisions - Should you hire, launch or delay? Runway gives context

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How to Calculate It (Simply)

Step 1 - Know your starting cash

What’s the bank balance today?

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Step 2 – Work out your monthly burn

Cash outflow, minus inflow. Don’t get bogged down in the granular detail here (don’t stress if you miss that a software subscription is going up £10 a month!), the goal is clarity, not perfection.​

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KISS (keep it simple, stupid).

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Step 3 – Factor in material changes

If you know you’ve got new hires joining, or have landed a chunky client on retainer, factor this in. A static model is dangerous, adjust!

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Common Mistakes

❌ Not understanding the difference between profit and cash, and the timing profiles e.g. customer and supplier payment terms (I’ll come onto this in another blog post)

❌ Overlooking timing on VAT, PAYE, corporation tax, R&D tax credits etc.

❌ Overly optimistic assumptions e.g. 100% conversion rate on all new leads. Build in some pessimism

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How to Use Runway in Practice

 <6 months runway – Survival mode. Reduce burn, raise cash

6-12 months runway – Some stability, but start the fundraising process

12+ months runway – Breathing room. Time to invest and grow strategically

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Final Thoughts

You don’t need a CFO to know your runway, a basic spreadsheet, discipline and awareness of what’s coming up. You do, however, need to revisit your runway regularly. Things change, so assumptions need updating.

Runway isn’t a ‘set once and forget’ metric, it’s a vital tool for survival and growth.​

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Want a simple runway template? We use the same starter tool for our clients, drop us a message and we’ll send it over.​​​​​​

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