How to calculate cash runway for a small business, in weeks

The formula

Runway is the cash you can use, divided by the cash you lose each week.

Runway in weeks = available cash ÷ average weekly net burn.

Available cash is not the bank balance. Take the balance across every account and remove the money that is already spoken for: sales tax or VAT collected on behalf of the government, payroll taxes withheld and not yet paid, and client deposits you would have to return if the work did not happen. What is left is the cash the business can actually spend.

Weekly net burn is cash paid out minus cash received, averaged over a recent stretch of weeks. Use closed, real figures from your bank, not the budget. If the business took in more than it paid out over that stretch, net burn is negative, and the formula stops giving a useful answer. That case has its own section below.

Gross burn and net burn

Gross burn is everything the business pays out in a week: salaries, payroll taxes, contractors, rent, software, travel. Net burn is gross burn minus what comes in.

Both produce a runway, and they answer different questions. Runway on net burn says how long the business lasts if it keeps billing and collecting the way it does today. Runway on gross burn says how long it lasts if receipts stop altogether: a key client delays payment, a contract pauses, a dispute freezes an invoice.

For a company where a few clients carry most of the revenue, the gross-burn figure is the one to know by heart. It is the floor. Net-burn runway is the expectation; gross-burn runway is how much time you have if the expectation fails.

Why weeks, and not months

Most runway figures are quoted in months because the accounts are kept in months. For a services company that hides the problem.

Payroll in a services firm is the largest single payment, and it leaves on fixed dates. Client money arrives on no fixed date at all. Within any month, the balance can swing from comfortable to tight and back again, and a monthly average never shows the bottom of the swing. A company with an average runway of five months can still be unable to meet the payroll in week six, if a large receipt is due in week seven.

So calculate two numbers. The average runway, from the formula above, tells you how much time the business has overall. The runway to the low point, read from a thirteen-week forecast, tells you the first week the balance falls below the minimum you must keep. The second number is the one that decides what you do this week.

A worked example

An example, with round numbers chosen for the arithmetic. A consultancy holds $640,000 across its accounts. It owes $40,000 in collected sales tax and $30,000 in withheld payroll taxes, so its available cash is $570,000.

Over the last thirteen weeks it paid out $1,560,000 and received $1,365,000. Gross burn is $120,000 a week, net burn is $15,000 a week. Runway on net burn is $570,000 ÷ $15,000 = 38 weeks. Runway on gross burn is $570,000 ÷ $120,000, a little under five weeks.

Thirty-eight weeks sounds safe. Now lay the payroll calendar against the expected client payments. Payroll of $360,000 leaves in weeks 2, 6 and 10. The two largest clients, who between them owe $300,000, pay in weeks 7 and 11. Through week 6 the firm pays two payrolls and six weeks of other costs, about $940,000, against roughly $420,000 from its smaller clients. The balance closes week 6 near $120,000, a third of the next payroll, even though the average runway is thirty-eight weeks. The average was right. It was also not the number that mattered.

What moves runway

Four things move runway in a services company, and each moves it on its own delay.

Collections move it fastest. Every client who pays a week earlier brings a week’s billing forward, and the effect shows in the next forecast.

Payroll moves it on its own calendar. A raise, a bonus or a change of pay date changes every future week from the date it starts.

A hire shortens runway before it lengthens it. The salary starts on the first day. The billing from that person starts once they are on a client project, and the cash starts only when that client pays. For a firm whose clients pay in forty-five days, a new consultant costs two to three payrolls before their first invoice is paid.

A price change lengthens runway on the longest delay of all. The new rate applies to work done after it takes effect, is invoiced at the end of the billing cycle, and is paid on the client’s usual terms. Price is the strongest lever over a year and the weakest over a month.

• Collections: effect in the next forecast
• Payroll changes: effect from the first affected pay date
• A hire: cost from day one, cash from the first paid invoice
• A price change: effect after one billing cycle plus the client’s payment delay

When the business is not burning cash

Many owner-run services companies take in more than they pay out over a quarter. For them the formula returns a negative burn, and runway in the startup sense is not limited.

The low point still is. A company that is cash-positive over a quarter can still be short in a single week, for the reason the example shows: payroll leaves before the client money arrives. For these companies, runway to the low point is the only runway figure worth calculating, and the weekly thirteen-week view is where it lives.

Your runway, from your own figures

CeoDash calculates runway from the files you already have and keeps one runway figure across every screen: a workspace setting picks the method once, so the owner, the accountant and the board pack read the same number. Beside it sits the rolling thirteen-week forecast, built on the timing you actually collect and pay on, which shows the low point the average hides. The first figures show in minutes, and file uploads are free.