Cash runway: how to calculate it, and what the number tells you

What runway measures

Cash runway is a measure of time. It answers one question: at the current rate of spending and receipts, how many months of cash does the business have before the bank balance reaches zero? It is a working number for the owner or director to keep in mind alongside profit, not a formal accounting figure.

The core formula is simple:

Runway (months) = Cash on hand ÷ Average monthly net burn

Cash on hand is the total of operating bank accounts, high-interest savings used for working capital and short-term deposits that can be released without penalty. Term deposits locked for twelve months are usually not counted. A business with an available overdraft or undrawn facility sometimes includes it to show a liquidity runway rather than a pure cash runway; the two are different and worth labelling separately.

Gross burn versus net burn

There are two common ways to think about burn.

Gross burn

Gross burn is total operating cash out in a month — salaries, rent, software, suppliers, interest and so on — before any revenue. It is useful for a stress test: if sales dropped to zero tomorrow, how long could the business keep paying its bills?

Net burn

Net burn is cash out minus cash in. If a business spends $120,000 of cash in a month and collects $100,000, net burn is $20,000. Net burn flips to a positive figure — cash in exceeds cash out — when the business is cash-flow positive, at which point runway is effectively open-ended as long as the trend holds.

How to pick a sensible monthly figure

A single month’s net burn is a poor base because it may contain one-offs — a quarterly BAS payment, an annual insurance renewal, a lumpy customer deposit. Most owners use a three-month or six-month average and strip out the clearly non-recurring items.

A worked example

These figures are illustrative round numbers in Australian dollars. A small services business has $240,000 in its operating account at the end of September 2026. Over the previous three months, net burn averaged $25,000. Runway on 30 September 2026 is $240,000 ÷ $25,000 = 9.6 months. The business would run out of cash in roughly late July 2027 at the current pace.

What the number is telling you

A long runway (eighteen months or more) means the business has time to invest in growth. A short runway (three months or less) means decisions about costs and funding are urgent. Runway tends to move for one of a few reasons: debtors stretching, a tax payment landing (BAS, PAYG, super or income tax), seasonal revenue, a one-off cost, or headcount changes.

The limits of the number

Runway is a backwards-looking shortcut dressed up as a forecast. It assumes next month looks like the average of recent months. A few traps are worth remembering: timing of large receipts and payments distorts a single month; GST, PAYG withholding and super guarantee held in the operating account are not really the business’s cash; income tax on last year’s profit is often paid later, so runway can look better than it is if that liability has not been provided for.

A forecast fixes most of those traps because it uses the known upcoming payments and expected receipts. There is more on building one at cash-flow forecast.

Runway, profit and the balance sheet

Runway sits with the cash statement, not the profit and loss. A profitable business can have short runway if debtors are stretching, stock is building, or a lender is being repaid. Reading runway alongside the P&L and the balance sheet gives a fuller view — that is the point of a monthly management pack. See management accounts.

Where Nella fits

Nella is an AI finance assistant for small businesses, built by the accountants at AccTek Ltd. Connected to Xero or QuickBooks on a read-only basis, it shows cash on hand, average monthly net burn and the resulting runway from the business’s own books, and flags when the number moves. Australian tax payments are not yet added to the cash-flow forecast. Information only — for decisions about funding or spending, a registered tax agent or qualified accountant can advise.

Work it out: Try the cash runway calculator — it runs in your browser and states the rule it applies.

Sources

• business.gov.au u2013 Managing cash flow
• business.gov.au u2013 Financial statements
• ATO u2013 PAYG instalments

Nella provides financial information and education, not accounting or tax advice. Nella shows you the numbers. When a question needs professional judgement, such as a filing or a tax decision, Nella says so and points you to a qualified accountant.