What is cash runway?
Cash runway tells you how many months of operation you have left at the current rate of cash burn — the single most important number when reserves are shrinking and revenue is not yet ahead of costs.
Cash runway tells you how many months of operation you have left at the current rate of cash burn — the single most important number when reserves are shrinking and revenue is not yet ahead of costs.
Cash runway is the number of months you can operate at the current burn rate before cash on hand reaches zero. Formula: Cash runway (months) = Cash on hand ÷ Monthly net burn rate. It is the single most useful number in any situation where the bank account is shrinking — a seasonal off-season, a slow ramp on a new location, or the aftermath of a bad quarter. nouz shows you daily EBIT and a clear cash position so the runway calculation is current, not a quarter behind.
TL;DR
Definition, in shop-owner English
Take the cash actually accessible to the business today — current account, savings account, undrawn credit line you would actually use. Divide it by the average net cash outflow per month (your burn rate). The answer is the number of months you can run before the cash runs out, assuming nothing else changes.
Runway is a future-looking estimate. It assumes the current burn rate continues. The reality is that revenue and costs both move — the summer ramp in a cafe, the December rush in retail, a planned price rise. A 5-month runway computed in February might in practice be 8 months by the time summer revenue lifts the burn rate to zero. The point of the metric is not to predict the exact month the cash runs out; it is to tell you whether you have enough room to do nothing, or whether you need to act.
Runway is irrelevant for a steady, profitable business in net-positive cash. You compute it only when burn is positive — when costs are running ahead of revenue and reserves are shrinking.
The formula and a worked example
Cash runway (months) = Cash on hand / Average monthly net burn
Average monthly net burn = (Cash at start of 3m - Cash at end of 3m) / 3A salon owner sits down at end of March. Bank balance: €18.400. Looking back at the last three months: started January with €27.900, ended March with €18.400. That is €9.500 of cash consumed over three months — an average net burn of €3.167/month.
| Step | Calculation | Result |
|---|---|---|
| Cash on hand (today) | — | €18.400 |
| Cash 3 months ago | — | €27.900 |
| Cash consumed in 3 months | 27.900 − 18.400 | €9.500 |
| Avg monthly net burn | 9.500 / 3 | €3.167 |
| Cash runway at current burn | 18.400 / 3.167 | 5,8 months |
Just under six months at the current rate. The salon owner now has to decide: does the spring/summer recovery cover the gap before runway hits two months, or is there a real risk? If last year's April-July netted +€6.000 of cash, runway is fine. If last year was flat, the salon needs to either lift revenue or cut a cost line — now, while there are still options.
Healthy runway by situation
| Runway band | Status | What to do |
|---|---|---|
| Less than 2 months | Critical. | Stop discretionary spend immediately. Talk to bank about a credit line. Renegotiate supplier terms. This is no longer a P&L problem; it is a liquidity problem. |
| 2 - 4 months | Danger zone. | Identify two cost lines that can be cut without breaking operations. Test a price rise on the top three sellers. Pull forward any receivables. |
| 4 - 8 months | Tight but workable. | You have time, but no slack. Do not approve any non-essential spend. Watch burn weekly, not monthly. |
| 8 - 12 months | Comfortable. | Normal operating headroom. Use it to invest in the next thing — equipment, marketing, a stock buy — rather than letting cash sit idle. |
| More than 12 months | Very comfortable. | Strong position. Consider whether the cash should be put to work (a marketing push, a refit, paying down expensive debt). |
These bands assume a seasonal business with a known recovery period. A pure-growth business burning cash to acquire customers should hold longer runway (often 18+ months) because the burn is voluntary, not seasonal. A mature steady cafe with predictable seasonality can run thinner because the recovery is reliable.
Boiled down to rules of thumb worth remembering — rough guides, not laws, and always read against your own recovery timeline. You can run your numbers through the cash-flow runway calculator to see the months figure directly.
| Rule of thumb | Rough guide | Read |
|---|---|---|
| Runway formula | = cash on hand ÷ net burn | Turns a bank balance into a survivable timeline. |
| Danger zone | Under ~4 months | Cut costs or raise cash now — options get expensive below this. |
| Comfortable | ~8-12 months | Normal operating headroom for a seasonal shop. |
| Growth-burn buffer | ~18+ months | Voluntary cash burn should carry a wider margin than seasonal. |
Common mistakes
- Confusing runway with reserves. €20.000 in the bank is not a runway — it is 20 months at €1.000/month burn and 2 months at €10.000/month. Runway is reserves divided by burn, and only the divided number tells you how much room you have.
- Using gross burn in the denominator. Runway uses net burn (outflows minus inflows). Using gross burn ignores the revenue still coming in and understates runway, sometimes badly during a partial off-season.
- Counting cash you cannot actually spend. A VAT balance you owe the tax office, or a credit line you would never draw, is not runway. Use cash genuinely available to operate.
- Assuming today's burn continues forever. Runway is a snapshot at the current rate. A 5-month runway in February can become 9 months once summer revenue lifts burn toward zero — the metric flags whether to act, it does not predict the exact zero date.
- Waiting until runway is short to act. The cheap fixes (a small price rise, one paused channel, a supplier-term renegotiation) work best while runway is still comfortable. By 2 months, only the expensive fixes are left.
Why it matters for daily P&L
Cash runway converts an abstract bank balance into a decision-relevant timeline. €18.400 in the bank sounds healthy. "5,8 months of runway at the current burn" is specific, actionable, and tells you exactly how much room you have to make moves. The bank balance is the input; runway is the answer.
The link to daily P&L is direct. EBIT drives burn over time. A cafe that runs at +€40/day EBIT will build cash. The same cafe at −€40/day will burn cash. Watching EBIT daily catches the shift weeks before runway tightens enough to matter. By the time runway hits 4 months, the EBIT trend has usually been negative for 6-8 weeks already.
The cheap fixes for short runway are almost always upstream: a 4-6% price rise on the top sellers, a renegotiation with one supplier, pausing a marketing channel that is not converting. The expensive fixes — letting staff go, breaking a lease, closing — only get cheaper if you do them earlier. The point of tracking runway is to see the shrink coming while the cheap fixes still work.
For the upstream metric, see burn rate. For the seasonal context, see seasonal business financial planning.
How it shows up in your daily P&L
Runway is downstream of profit. The daily EBIT line is what decides whether reserves build or shrink: a cafe at +€40/day EBIT is extending its runway every day it trades, and the same cafe at −€40/day is spending it. Because runway usually only tightens into the danger zone after the EBIT trend has been negative for six to eight weeks, watching same-day profit is how you catch the shrink while the cheap fixes still work — not after the bank balance forces the expensive ones.
Related concepts
- Burn rate — the input to the runway calculation.
- Cash flow vs profit — why runway uses cash, not EBIT.
- Seasonal business financial planning — managing a planned runway draw.
- Fixed cost coverage ratio — the operating-side metric that pairs with runway.
Common questions
How do I calculate cash runway?
Cash runway (months) = Cash on hand / Average monthly net burn rate. Take the cash actually available, divide by the average net cash outflow per month (computed over the last 3 months to smooth noise). If you have €15.000 and burn €3.000/month, you have 5 months of runway at the current rate.
What is a healthy cash runway for a small business?
For a seasonal business with a known recovery, 4-8 months is workable, 8-12 months is comfortable. Below 4 months is the danger zone where you should be cutting costs or raising prices now. Below 2 months is critical and needs immediate action — credit line, supplier-term renegotiation, or both.
Is cash runway the same as cash reserves?
No. Cash reserves is the absolute amount in the bank. Cash runway is reserves divided by burn rate — the number of months that cash will last. €20.000 of reserves is comfortable at €1.000/month burn (20 months of runway) and critical at €10.000/month burn (2 months of runway). Runway converts the balance into a timeline.
How can I extend my cash runway?
Two levers: reduce burn or add cash. Reducing burn is usually faster — a 4-6% price rise on top sellers, pausing one underperforming marketing channel, renegotiating a supplier payment term from 14 to 30 days. Adding cash is slower (bank credit line, equity, a pre-sale campaign) but bigger. Most owners try to fix runway by cutting one big cost; the better play is usually three small cuts plus a small price rise.
What counts as cash on hand for the runway calculation?
Cash genuinely available to operate: current account, savings you would actually tap, and a credit line you would really draw. Exclude money you owe but have not paid yet (VAT, supplier invoices due) — that is not spendable runway. Overstating cash on hand is the fastest way to make a tight runway look safe.
Should I use gross or net burn for runway?
Net burn — outflows minus inflows. Runway measures how long reserves last given that revenue is still coming in, so using gross burn (all outflows) ignores that revenue and understates runway. Compute net burn over a 3-month rolling window to smooth single-month noise, then divide cash on hand by it.
Does nouz calculate cash runway for me?
No. nouz is a simple daily profit tool, not accounting or treasury software — it does not read your bank balance or forecast runway. You calculate runway from your actual cash position and burn. What nouz adds is the same-day EBIT that determines whether your reserves are growing or shrinking, so you see the trend that moves your runway before the bank balance does.