Runway & Scenarios
How long the cash lasts, with a reserve, with changing burn, and across scenarios.
Pen and paper is fine · no calculator needed why?
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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
- 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
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
- Split the time into stretches with a steady rate.
- Multiply rate × time for each stretch.
- Add the stretches.
worked 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
- 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
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
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.
practice
Simple runway
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
- 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
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
- Net burn = $36,500 − $31,500 = $5,000.
- $35,000 ÷ $5,000 = 7, so 7 full months.
Runway above a cash reserve
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
- Usable cash = $32,500 − $14,000 = $18,500.
- $18,500 ÷ $7,000 ≈ 2.64, so 2 full months.
Burn that changes (adding up rates)
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
- Add rate × time for each stretch: $5,000 × 3 + $11,000 × 1 = $15,000 + $11,000 = $26,000.
- Adding up a changing rate over time is the idea behind an integral.
Probability-weighted cash
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
- 0.6 × $72,000 + 0.3 × $66,000 + 0.1 × $80,000
- = $43,200 + $19,800 + $8,000 = $71,000. Plan for the downside too, not just the average.