Definition
Runway estimates how many months you can operate before running out of cash. The key input is net burn: cash outflows minus cash inflows in a period.
Quick formulas
- Net burn = cash outflows - cash inflows.
- Runway (months) = cash balance / net burn (if net burn > 0).
- Gross profit = revenue * gross margin (simplified).
- Break-even revenue ~ operating expenses / gross margin (simplified).
Why cash planning goes wrong
- Revenue is not cash: collections timing (AR) can delay inflows.
- Expenses are not always cash: prepayments, capex, and payroll timing matter.
- Growth often increases burn before it reduces it (sales/marketing ramp, hiring, infra).
Practical checklist
- Model best/base/worst scenarios and update monthly.
- Separate recurring revenue from one-time revenue so you can see stability.
- Track runway by cash, not just by P&L profitability.
- If runway is short, prioritize actions with immediate cash impact (collections, spend control, pricing).