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Cash runway estimates how long a usable cash balance can support a repeated net cash outflow. It is a shortcut for a dated cash forecast, not a measure of profitability. The shortcut is most useful when receipts and payments are reasonably steady and no large one-time event sits just beyond the measurement period.
Monthly net cash burn = monthly cash payments − monthly cash receipts
Runway at positive constant burn = usable cash ÷ monthly net cash burn
Distinguish gross spending from net burn
Assume the business has $42,000 of usable cash, receives $18,000 monthly, and pays $25,000 monthly. Gross spending is $25,000, but net burn is $7,000. Simple runway to a zero balance is six months. Dividing cash by gross spending instead gives 1.68 months and answers a different scenario: one in which the modeled receipts stop entirely.
| Scenario | Monthly receipts | Monthly payments | Net burn | Simple runway |
|---|---|---|---|---|
| Base | $18,000 | $25,000 | $7,000 | 6 months |
| Lower receipts | $14,000 | $25,000 | $11,000 | 3.82 months |
| Balanced cash | $25,000 | $25,000 | $0 | No finite exhaustion date |
| Cash accumulating | $28,000 | $25,000 | −$3,000 | No finite exhaustion date |
At zero burn, division by zero is undefined. Operationally, the unchanged model never uses up cash, so it has no finite runway to exhaustion. At negative burn, cash grows under the assumptions; a negative quotient is not a negative number of months remaining. State the result as no finite exhaustion date under constant flows, while preserving the negative burn value.
Choose the cash threshold you actually care about
If the business wants to retain a hypothetical $7,000 operating cushion, cash available above that threshold is $35,000. At $7,000 monthly burn, time to the cushion is five months. That is distinct from the six months to zero. The cushion is not a payment and should not also be subtracted from each month's receipts.
Use settled cash that is available for the modeled operations. Receivables, inventory, refundable customer money, and cash committed elsewhere may require separate treatment. A receivable is not opening cash merely because collection is expected soon; place its collection in the appropriate future period.
Know when to leave the shortcut
An annual subscription, inventory purchase, equipment replacement, or seasonal sales decline can make average burn misleading. Build a week-by-week schedule if the timing matters. A cash-positive monthly average can still contain a difficult payment day. Likewise, a one-time outflow can produce a high historical burn rate that should not automatically be repeated forever.
Round the displayed runway sensibly, but do not round a small positive burn to zero before dividing. Keep losses and negative projected balances visible. This calculation describes a scenario and cannot promise a survival date, future receipts, or a particular business outcome.
Method references: OpenStax: Prepare Financial Budgets. Accessed October 22, 2026. All dollar figures are hypothetical worked examples.
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