courses › Business Stats & Decisions

Runway & Scenarios

level 38 course

How long the cash lasts, with a reserve, with changing burn, and across scenarios.

Pen and paper is fine · no calculator needed why?

Opens at level 38.

Builds on: Cash Forecasts (not open yet)

the lesson

The idea, the techniques and a tip for each skill, right here. The Learn page adds worked examples for every skill and untimed practice.

Read the lesson · about 3 minutes

The idea

Runway is how many months your cash lasts: cash ÷ net burn, the cash going out each month minus the cash coming in. Round down to full months, since a part month doesn't pay a full month's bills.

Simple runway assumes burn stays steady. When it changes, add up each stretch, rate × time, then total. Adding up a changing rate is the idea behind an integral.

For an uncertain future, weigh the base, downside and upside cases by their chances, and plan for the downside too.

Techniques

Usable cash ÷ net burn

How many full months the cash lasts.

Net burn: cash out minus cash in, per month.
Take off any reserve you must keep. Only cash above it can be spent.
Divide the usable cash by net burn.
Round down to full months.

worked example

Example: A design studio has $52,000 of cash. Each month it pays out $20,000 and takes in $14,000. It keeps an $8,000 reserve. How many full months until it reaches the reserve?

Net burn: $20,000 − $14,000 = $6,000.
Usable cash: $52,000 − $8,000 = $44,000.
$44,000 ÷ $6,000 ≈ 7.3, so 7 full months.

Answer: 7

Add up each stretch

Burn that changes over time.

Split the time into stretches with a steady rate.
Multiply rate × time for each stretch.
Add the stretches.

worked example

Example: Cash use is $300 a day for 4 days, then $500 a day for 2 days. What is total cash used?

$300 × 4 = $1,200.
$500 × 2 = $1,000.
$1,200 + $1,000 = $2,200.

Answer: $2,200

Weigh the scenarios

Base, downside and upside cases, each with a chance.

Multiply each case by its chance, as a decimal.
Add them. A negative case counts as negative.
Then look at the downside on its own.

worked example

Example: Next quarter's ending cash is $50,000 in the base case (60%), $20,000 in the downside (30%) and $90,000 in the upside (10%). What is the probability-weighted ending cash?

0.6 × $50,000 = $30,000.
0.3 × $20,000 = $6,000, and 0.1 × $90,000 = $9,000.
$30,000 + $6,000 + $9,000 = $45,000.

Answer: $45,000

Tips by skill

TipSimple runway: Divide cash by net burn. If it does not divide evenly and the question asks for full months, round down.
TipRunway from cash in and out: Net burn is cash out minus cash in. Divide cash by it, then round down to full months.
TipRunway above a cash reserve: Take the reserve off the cash first, divide by net burn, then round down to full months.
TipBurn that changes (adding up rates): Multiply each rate by its own stretch of time, then add the stretches.
TipProbability-weighted cash: Multiply each case by its chance as a decimal and add. A negative downside counts as negative.

Watch out for

Dividing by total spending instead of net burn. The cash coming in each month stretches the runway.
Ignoring the reserve. Only cash above the reserve can be spent.
Using the ending rate for the whole period when burn changes. Add each stretch at its own rate.
Averaging the scenarios equally. Weight each one by its chance.

skills · practice stats

From rounds of this course only: box, review and test-out answers are left out. Once a skill has 40 tries, it compares your first 20 tries with your last 20.

Simple runway par 12 s not tried yet
worked example
Cash is $281,000 and net cash burn is steady at $26,000 a month. How many full months of runway is that?

Answer: 10 months
1. Runway = cash ÷ net burn = $281,000 ÷ $26,000 ≈ 10.8, so 10 full months, if burn really stays steady.
Runway from cash in and out par 18 s not tried yet
worked example
Cash is $35,000. Each month, cash out is $36,500 and cash in is $31,500. How many full months of runway?

Answer: 7 months
1. Net burn = $36,500 − $31,500 = $5,000.
2. $35,000 ÷ $5,000 = 7, so 7 full months.
Runway above a cash reserve par 20 s not tried yet
worked example
Cash is $32,500, net burn is $7,000 a month, and company policy keeps at least $14,000 in the bank. How many full months until the reserve is reached?

Answer: 2 months
1. Usable cash = $32,500 − $14,000 = $18,500.
2. $18,500 ÷ $7,000 ≈ 2.64, so 2 full months.
Burn that changes (adding up rates) par 20 s not tried yet
worked example
Cash use is $5,000 a month for 3 months, then $11,000 a month for 1 month. What is total cash used?

Answer: $26,000.00
1. Add rate × time for each stretch: $5,000 × 3 + $11,000 × 1 = $15,000 + $11,000 = $26,000.
2. Adding up a changing rate over time is the idea behind an integral.
Probability-weighted cash par 20 s not tried yet
worked example
Next quarter's ending cash is $72,000 in the base case (60%), $66,000 in the downside (30%), and $80,000 in the upside (10%). What is the probability-weighted ending cash?

Answer: $71,000.00
1. 0.6 × $72,000 + 0.3 × $66,000 + 0.1 × $80,000
2. = $43,200 + $19,800 + $8,000 = $71,000. Plan for the downside too, not just the average.

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