Runway: How Many Months You Can Last

Short Answer: Runway is cash on hand divided by your monthly net burn, the amount your balance falls in a typical losing month. Cash of $63,300 and a net burn of about $6,650 a month is about 9.5 months. Calculate it a second way too: cash divided by the bills you'd still owe if revenue stopped. The first tells you whether a slow season fits in the bank; the second tells you how long you'd have to react to a shock.

Runway is usually a startup word, but every owner-run business has one. A seasonal company has one every winter. A business that just lost its biggest client has one starting today. Knowing the number turns "we'll be fine" into a date.

What Is Burn Rate?

Net burn is how much your cash balance falls in a month: everything that goes out (costs, loan principal, what you pay yourself) minus everything that comes in. If more comes in than goes out, you aren't burning.

Fixed burn is the part you'd still pay if revenue dropped to zero: overhead, loan payments, your own draw, and any staff you'd keep. It's the stress-test version.

How Do You Calculate Runway?

Two formulas, for two questions:

• Net runway = cash on hand ÷ net burn. How long can the business last on its current path?
• Fixed runway = cash on hand ÷ fixed burn. If revenue stopped tomorrow, how long before the account is empty?

Use the cash you can actually spend. Money set aside for next quarter's tax payment isn't runway.

A Worked Example: Greenline's Winter

Take a hypothetical landscaping company, Greenline Landscaping. It does about $520,000 a year in revenue, but April to October carry most of it. From November to March it brings in about $18,400 a month from snow removal and cleanups for commercial clients, done by a two-person winter crew. Here is a typical winter month:

The overhead line leaves out depreciation, which is a cost on the P&L but never leaves the bank, and ads, which Greenline runs only from April to October. Greenline ends October with $63,300 in the bank.

Net runway: $63,300 ÷ $6,653 = about 9.5 months. The winter lasts five, so the season costs about $33,300 and Greenline enters April with $30,000. That's enough, but only just: April's collections lag its costs, and the balance drops to $4,500 by the end of the month (the walk is in Profit Is Not Cash).

Fixed runway: if revenue stopped and the crew was let go, Greenline would still owe cash overhead, the loan and the owner's draw:

$63,300 ÷ $13,277 is about 4.8 months. In a real shock, that's how long the owner has to find new work or cut costs.

The two numbers tell different stories. Nine and a half months says the winter is safe. 4.8 months says a lost commercial client in November leaves less room than the calendar suggests.

What Is a Safe Runway?

There's no universal number, but a few benchmarks help:

• Seasonal businesses: net runway should cover the full slow season plus the first month of the busy one, since collections lag. Greenline's five winter months plus April's lag is the real test, and it passes with little to spare.
• Steady businesses: many owners aim for three to six months of fixed burn in reserve.
• New businesses: runway should cover the months until the business pays its own way, plus a cushion. For a founder, that includes the household (see Quitting Your Job).

How Do You Lengthen Runway?

Runway has two levers: more cash or less burn. More cash comes from collecting faster, a line of credit arranged before you need it, or a deposit on next season's contracts. Less burn comes from the few costs you can move: a lower draw in the slow months, pausing ads that won't convert until spring, or restructuring a loan so the payment is smaller in winter.

For Greenline, the draw is the biggest cost it controls. Taking $1,000 a month less over the winter, about $7,220 instead of $8,220, lowers net burn to about $5,650 and lifts the April starting balance from $30,000 to $35,000.

What to Look For

• The month your balance is lowest, not the average. Runway on an annual average hides the month you'd actually run out.
• Runway shrinking year over year. If each winter ends with less cash than the last, the business is funding something (equipment, growth, draws) faster than it earns.
• Money that isn't yours. Tax set-asides and customer deposits for future work sit in the account but shouldn't count.

What a Finance Consultant Would Do Next

A consultant looking at Greenline's winter would go straight to the April squeeze: move commercial contracts to billing at the start of the month, ask for deposits on spring installs in February, and set a winter draw that leaves at least a month of fixed burn in the bank on April 1. They'd also check what a lost commercial client does to the fixed runway.

That analysis is what Occam's Model runs on your own numbers. It traces your revenue down to cash, tests changes like faster collections or a restructured loan against a copy of your business, and forecasts the months ahead so you can see how long your cash lasts. When you need extra help, an expert can review it with you.

Common Questions

What is a good cash runway for a small business?
Enough to cover your slowest stretch with a cushion. Many owners aim for three to six months of fixed costs; seasonal businesses need enough to clear the whole off-season.

Should I include my own pay in the burn rate?
Yes. Your household still needs it, and a runway that assumes you take nothing overstates how long you can last.

Does a line of credit count as runway?
Count it separately. It extends how long you can last, but it has to be repaid, and a bank can reduce it when your numbers look worst.

How often should I recalculate runway?
Monthly, and any time a big client leaves or a large expense lands. In a slow season, weekly is better.