Cash runway planning

Direct answer

For this review, explain runway as cash divided by net burn, then move beyond the formula into milestone-based runway planning.

Why this question comes up

Founders want to know how much time they actually have and what milestone the remaining cash should buy. This guide turns that concern into a review that can be repeated with a defined period, consistent inputs, and a visible trail back to the records.

Records to gather

• Current cash balance across all accounts, dated
• Trailing three to six months of net burn
• Accounts receivable aging, with realistic collection dates rather than terms
• Accounts payable and any negotiated payment deferrals
• Debt schedules: principal, interest, covenants, balloon dates
• Committed future spend already signed — annual contracts, hires with start dates

Review workflow

1. Fix the starting balance. Use reconciled cash as of a stated date, not a bank-app figure that may include pending items.
2. Choose the burn basis and defend it. Trailing three-month net burn is the common default. If the business is growing or has just cut costs, a trailing average understates or overstates forward burn — say which and adjust.
3. Layer in what is already committed. A signed hire starting next month or a renewal invoicing in 60 days belongs in the projection even though it is not in the trailing average.
4. Discount receivables to when cash actually arrives. A 30-day invoice with a customer who pays at 55 days is a 55-day cash event.
5. Run a downside. Model a case where collections slip 30 days and revenue stays flat. The gap between base and downside runway is the number that should drive decisions.
6. Name the decision date. Runway matters because it sets a deadline — raise, cut, or change course. State the date by which that decision must be made, working back from the lead time it requires.

What a useful answer should include

• Runway in months and the specific date cash reaches zero under the base case
• The burn basis used, with any adjustment for a structural change explained
• A downside case with its assumptions stated, not just a single number
• Committed future spend listed separately from the trailing average
• Receivables timed to expected collection rather than invoice terms
• The decision date, and what lead time it assumes for a raise or a cut

Common failure modes

• Dividing cash by last month’s burn. One atypical month sets the whole plan. It is the most common runway error and usually the most expensive.
• Counting receivables as cash. A/R is a claim, not a balance. Some of it will arrive late and some will not arrive.
• Omitting committed spend. Signed contracts and accepted offers are cash obligations the trailing average has never seen.
• Reporting one number. Runway is a range. A single figure invites false confidence and hides the downside that actually needs planning for.
• Forgetting the raise takes time. Runway to zero is not runway to decide. Fundraising commonly takes months, so the real deadline is well before the cash runs out.

Community context

The linked community posts show why people search for this topic and which parts create confusion in practice. They are anecdotal. Use the reference sources and your organization’s policies for accounting treatment, tax, compliance, and final decisions.