Cash runway:
burn rate, months left, and when to act

A countdown measured in months

Cash runway is the number of months a business can keep operating before its bank balance reaches zero, assuming the spending and income pattern continues. Founders of young companies use it most, but any small business with uneven income can use it. It turns a balance, which feels like a large static number, into a time, which is easier to plan around.

Two inputs are needed: how much cash you actually have, and how fast it is draining. The second one, the burn rate, is where most mistakes occur.

Gross burn versus net burn

Gross burn is everything the business spends in a month: salaries, rent, tools, marketing, loan payments. Net burn is gross burn minus the cash that comes in from customers that month. Runway uses net burn, because incoming cash extends the life of what is in the bank.

Measuring burn honestly

• Use cash, not accounting profit: unpaid invoices, upfront annual subscriptions and loan principal are cash events that profit figures ignore.
• Average the last three months rather than one, so a single large payment does not distort it.
• Include periodic costs: annual insurance, taxes and software renewals should be spread across 12 months.
• Subtract only collected revenue, not billed revenue. A customer who pays 60 days late has not yet helped.
• Hold back money you cannot spend: tax collected but not remitted, and customer deposits.

Beware of one-off inflows. A grant, a tax refund or a single large advance from a customer lifts the balance without changing the monthly pattern, so adding it to cash is right but folding it into monthly income is not. Equally, a large annual payment due in month seven belongs in the forecast when it falls, not spread thinly in the average.

Why collections timing can break a healthy-looking plan

Profit on paper and cash in the bank are different things, and the gap is widest when customers pay late. Suppose the business bills ₹4,00,000 a month and customers take about 45 days to pay. In the first month and a half nothing arrives, then ₹4,00,000 a month starts flowing. The balance for those early months is much lower than a plan based on billing would show, even though the sales are real.

The same logic applies to suppliers. If you pay a supplier in advance and sell the goods 60 days later, you finance that wait. Longer payment terms from suppliers and shorter ones for customers both improve runway without any change in revenue or cost. They are usually the quickest levers to pull, which is why a runway calculation should be paired with a list of invoices outstanding and their expected dates.

A simple three-column weekly forecast helps: expected receipts, expected payments, closing balance. Update it each Monday for the next 13 weeks, and compare actual with forecast. The first time you see a shortfall appear in week nine, you have time to act in week two.

What growth and cuts do to the number

The 12-month answer assumes nothing changes. In practice revenue and costs move, and runway moves with them. Compare scenarios using the same ₹60 lakh.

In the last case revenue climbs from ₹4 lakh to about ₹9.2 lakh by month 17, catching up with the ₹9 lakh spend. The company survives, but only just: the cash low point is close to ₹10.4 lakh. Slightly slower growth turns this into a failure, which is why founders watch both the growth rate and runway together.

How much runway is enough

There is no universal threshold, but there is a practical rule of timing. Raising money, closing a bank loan or restructuring costs usually takes several months, and the process goes better when you are not desperate. Many advisers suggest treating about 12 months as comfortable and 6 months as the point to take firm action, but the right figure depends on how quickly you can cut and how predictable your income is.

• More than 18 months: you have room to invest in growth, but check that burn is not rising faster than revenue.
• 9 to 18 months: start planning the next step, whether raising funds, cutting, or reaching break-even.
• Under 6 months: reduce burn now and open financing talks, since the options narrow quickly.

These bands are general guidance and not advice for a specific company.

Limits of the number

Runway is a straight-line estimate. It does not capture seasonality, a large one-off payment, or revenue that depends on a few customers. Treat it as a first read and combine it with a month-by-month cash forecast for the next 12 to 18 months.

It also assumes the balance counts as available. Cash held as a security deposit, in a different currency with transfer limits, or earmarked for taxes should be removed first. A calculator is helpful for quickly comparing the effect of a cost cut or a revenue change before you commit to either.