Business Runway
Business runway is the estimated time a business can continue before its available cash is exhausted at a stated net cash-burn rate.
What is Business Runway?
Runway converts a cash balance and an expected rate of cash use into months or another time unit. It is commonly used when outflows exceed inflows. The estimate describes a scenario, not a guaranteed date.
Available cash should reflect what can actually fund the operation. Restricted balances or an explicitly protected reserve may need to be excluded. Undrawn funding that has not been secured should not silently be treated as existing cash.
Runway in months = Available cash ÷ Expected monthly net cash burn
Net burn means the modeled cash outflows exceed cash inflows by a positive amount. State which operating, investing and financing payments are included in the forecast.
How long the usable reserve lasts
A small ecommerce store has $75,000 in cash and ring-fences $15,000 as a minimum reserve. With $60,000 available above that floor and expected net burn of $10,000 per month, runway to the reserve threshold is six months. This is not the same as runway to a zero bank balance.
How to interpret it
A constant monthly burn is a simplifying assumption. Inventory deposits, tax dates and seasonal sales can make actual cash use uneven. A store can hit a critical payment gap before the simple average suggests.
If operations are cash-generative under the modeled conditions, the ordinary positive-burn division does not give a finite exhaustion date. Report that the scenario has no positive net burn rather than displaying a negative runway or promising unlimited survival.
Runway changes with assumptions about revenue, spending and committed obligations. Cost reductions may extend it, but delayed spending that must eventually occur can shift rather than remove the cash need.
A forecast should distinguish currently available cash from hoped-for investment or borrowing. Including uncertain financing in the base case can make the result appear safer without changing the cash already available.
Common mistakes
Dividing by gross expenses while ignoring inflows
That gives a gross-burn measure. Net-burn runway accounts for the cash receipts included in the scenario.
Using accounting loss as net burn
Inventory, debt principal, capital purchases and non-cash expenses can make cash use differ from reported profit or loss.