What Is Cash Runway and How Do You Calculate It?
Cash runway is an estimate of how long your current cash can support the business before it runs out, given the rate at which the business is using cash.
The simple formula is:
Cash runway = Current cash balance ÷ Monthly net cash burn
If a business has EGP 900,000 in available cash and is using EGP 150,000 more cash than it generates each month, its simple runway is:
EGP 900,000 ÷ EGP 150,000 = 6 months
That is useful—but it is only a starting point. Real businesses rarely burn exactly the same amount every month.
First calculate net cash burn
Net cash burn is the amount by which cash outflows exceed cash inflows during a period.
A simple monthly form is:
Net cash burn = Cash outflows − Cash inflows
Suppose a business collects EGP 650,000 during the month and pays EGP 800,000 in payroll, suppliers, rent, taxes and other cash expenses.
Its net burn is:
EGP 800,000 − EGP 650,000 = EGP 150,000
If opening cash is EGP 900,000, the shorthand runway is six months.
Illustrative example only. These figures are not benchmarks for Egyptian SMEs.
The formula stops being useful when burn is unstable
The simple formula assumes the recent burn rate is a reasonable guide to the future.
That can fail quickly.
A business may have:
- a tax payment next month;
- annual insurance due in one month;
- a new hire starting in two months;
- a seasonal sales peak;
- a delayed customer payment;
- equipment or fit-out spending;
- a loan repayment;
- a large deposit or supplier prepayment.
If cash flow changes materially from month to month, one average burn number hides the timing.
For that business, the stronger question is not “What is my average runway?” It is:
In which month does my forecast cash balance become uncomfortably low or negative?
Use a month-by-month forecast for a realistic runway
Imagine the same business starts with EGP 900,000.
| Month | Net cash movement | Closing cash |
|---|---|---|
| Start | — | EGP 900,000 |
| Month 1 | -EGP 100,000 | EGP 800,000 |
| Month 2 | -EGP 180,000 | EGP 620,000 |
| Month 3 | -EGP 250,000 | EGP 370,000 |
| Month 4 | -EGP 80,000 | EGP 290,000 |
| Month 5 | +EGP 50,000 | EGP 340,000 |
The average early burn suggests a declining cash position, but the business does not actually run out of cash in this five-month period. It starts recovering in Month 5.
Now change one assumption: a customer expected to pay EGP 200,000 in Month 4 pays in Month 6 instead. Month 4 closing cash drops to EGP 90,000.
The arithmetic did not change because of a different “runway formula.” It changed because timing changed.
That is why runway belongs inside a cash forecast.
If you are building that forecast for the first time, Business Forecasting: Creating Your First Financial Forecast Without Historical Data offers a practical starting point.
Cash runway is not the same as profit
A profitable business can have a short cash runway.
If you invoice customers today but collect later, the profit may appear before the cash arrives. If you buy inventory before selling it, pay staff before collecting invoices, or make capital purchases, cash can fall even when the business is profitable.
The opposite can happen too. A business can temporarily increase cash through a loan even while its operations are losing money.
If this distinction is the issue you are seeing, Sales Are Up. So Why Is Cash Going Down? explains the profit-versus-cash timing problem in more detail.
When should a founder recalculate runway?
Recalculate when the underlying cash outlook changes materially.
Useful triggers include:
- a major contract is won or lost;
- customer payment timing changes;
- a new hire is approved;
- rent or supplier prices change;
- funding is received;
- loan repayments start;
- a large asset purchase is committed;
- sales are materially above or below forecast.
For a business with volatile cash flows, reviewing the cash forecast monthly is usually more useful than relying on one static runway number.
What if the business is cash-flow positive?
If cash inflows consistently exceed outflows, “cash runway” as cash divided by burn no longer produces a meaningful positive month count because there is no net burn.
That does not mean cash risk disappears.
A cash-positive business can still face a temporary trough if a large payment comes before customer collections. In that situation, monitor the lowest forecast cash balance and the month in which it occurs.
That is often the more decision-useful measure for an established SME.
Use scenarios before making a commitment
Runway becomes more useful when you test the assumptions that can move it.
Create at least a base case and a downside case.
For example:
Base case
- customers pay on expected dates;
- planned sales are achieved;
- no unexpected large expense occurs.
Downside case
- sales are 15% lower for three months;
- a major customer pays 30 days later;
- supplier costs rise 8%;
- a planned hire still starts on schedule.
Then compare:
- lowest cash balance;
- month of lowest cash;
- whether cash becomes negative;
- how much extra funding or cost action would be needed.
The value is not predicting one exact future. It is seeing which assumptions make the business vulnerable.
Model cash runway in BznsBuilder
BznsBuilder is AI business planning and financial forecasting software for SMEs. Its forecast can model revenue, direct costs, personnel, expenses, assets, financing and cash flow over time, while what-if scenarios let founders test alternative assumptions against a base case.
BznsBuilder's verified financial-forecast and what-if-scenario capabilities can be used to model the cash path behind a runway decision. A separate dedicated cash-runway feature is not presented here.
A month-by-month financial forecast lets you see the cash path rather than relying only on an average burn-rate shortcut.
See what a decision does to your cash before you commit. Start your 7-day free trial.
A practical runway checklist
Before you act on a runway number, check:
- Is the cash balance actually available?
- Are you using cash inflows and outflows, not accounting revenue and expenses?
- Is the burn period representative?
- Are taxes included?
- Are debt repayments included?
- Are equipment and other capital payments included?
- Are customer payment delays modeled?
- Are supplier-payment terms modeled?
- Have you tested a downside scenario?
- What is the lowest forecast cash balance—not just the average runway?
Cash runway is a useful warning measure. A cash forecast turns it into a decision framework.
