Cash Runway: Calculate How Long Your Business Can Survive Without New Revenue

Cash runway tells you how long your business can keep operating if no new revenue comes in. Calculate it by dividing the cash you have available by your average monthly net cash burn.

What Is Cash Burn?

Cash burn is the rate at which a business uses its available cash when cash going out is greater than cash coming in.

For example, a Bengaluru café receives ₹1,80,000 in a month but pays ₹2,30,000 for ingredients, salaries, rent, utilities and other costs.

• Cash inflow: ₹1,80,000
• Cash outflow: ₹2,30,000
• Net cash burn: ₹50,000

It is using ₹50,000 of existing cash every month.

How Do You Calculate Cash Runway?

Use this formula:

Cash Runway = Available Cash ÷ Average Monthly Net Cash Burn

Suppose your business has ₹4,00,000 in available cash and its average monthly burn is ₹80,000:

₹4,00,000 ÷ ₹80,000 = 5 months

Your estimated cash runway is therefore 5 months. This does not mean the business will automatically close after five months. It means the current cash reserve could be exhausted in five months if the burn rate continues and no additional cash arrives.

How Is Cash Burn Calculated?

For runway, use net cash burn:

Net Cash Burn = Cash Outflows - Cash Inflows

If a business spends ₹3,00,000 and receives ₹2,40,000, its net burn is ₹60,000. This is the amount of existing cash being consumed that month.

What Does Your Cash Runway Mean?

The result tells you how much time you have to change the numbers. A runway under three months deserves close attention; three to six months gives more time to improve sales, margins or costs.

What If Your Business Is Losing Money Every Month?

A monthly accounting loss is not always the same as cash burn. Depreciation, credit sales, inventory purchases and loan repayments can make accounting profit and cash movement differ.

For runway, look at actual cash:

1. Opening cash balance
2. Cash received
3. Cash paid out
4. Closing cash balance

Then calculate average net burn over several recent months. One unusual month can distort your estimate.

Example: A Small Indian Business

A business has ₹2,50,000 available. Its net cash burn over three months was ₹40,000, ₹50,000 and ₹60,000.

Average burn: (₹40,000 + ₹50,000 + ₹60,000) ÷ 3 = ₹50,000.

Runway: ₹2,50,000 ÷ ₹50,000 = 5 months.

Burn is increasing, so five months may be optimistic if the trend continues.

How Can You Extend Cash Runway?

Once you know your runway, work on the numbers causing the cash drain:

• Improve profitable sales: Review pricing, margins, product mix and discounts.
• Reduce avoidable costs: Remove or renegotiate expenses that do not support the business.
• Collect faster: Credit sales can create profit on paper while cash remains unavailable.
• Control inventory: Slow-moving stock ties up cash.

If sales are below the level needed to cover costs, calculate your break-even point. If pricing or margins are the problem, use the Profit Margin Calculator and review gross margin.

Calculate Your Cash Runway

Use the DecisionLab Business Cash Runway Calculator to estimate how many months your current cash can support the business.

Further Reading

If you are evaluating a business before committing money, Do the Math First: 25 Numbers to Calculate Before Starting a Business by Kajal Mandal covers practical calculations for testing a business idea.

Frequently Asked Questions

What is cash runway?

Cash runway is the estimated time a business can continue before its available cash is exhausted, assuming its current net cash burn continues.

How do you calculate cash runway?

Divide available cash by average monthly net cash burn: Cash Runway = Available Cash ÷ Monthly Net Cash Burn.

Is cash runway the same as profit?

No. Profit is an accounting measure. Cash runway measures how long available cash can cover a continuing cash shortfall.

Should I use monthly loss to calculate runway?

Not automatically. Use actual cash inflows and outflows because accounting loss can include non-cash items and exclude some cash movements.