Cash Runway Is Not What You Think It Is
The formula everyone uses is wrong
Ask any founder how much runway they have and they will divide their current cash balance by their average monthly burn. The result is a number of months. That number is almost always wrong — and usually in the dangerous direction.
The formula assumes burn is constant, collections are predictable, and no committed obligations create timing cliffs. In reality, burn fluctuates with hiring decisions, vendor contracts create payment clusters, and revenue collections lag by weeks or months. The headline runway number creates false confidence that obscures when the business actually runs out of operating cash.
Cash timing gaps kill businesses
A business can be profitable on every transaction and still run out of cash. The mechanism is timing: if you pay vendors on net-30 but collect from customers on net-60, every sale creates a 30-day cash gap. As sales volume increases, that gap widens proportionally. More sales means more cash locked in the timing gap.
This is why growing businesses often need more cash, not less. Each new customer represents a timing gap that must be funded. Without understanding this dynamic, founders celebrate closing deals while their cash position deteriorates.
Committed outflows are not optional
Monthly burn averages smooth out the reality of committed outflows. Annual software contracts, quarterly tax obligations, insurance renewals, and office leases create cash cliffs — months where outflows spike significantly above the average. If the business plans around average burn, these cliffs arrive as emergencies.
The Cash Reality & Runway evaluator uses the Cash-Out Commitment Mapping operator specifically to surface these hidden cliffs before they become liquidity crises.
Working capital is invisible until it is not
Working capital — the cash required to fund the gap between paying suppliers and collecting from customers — is one of the least understood financial concepts among founders. It does not appear on most management dashboards. It is not tracked in most startup financial models. And it scales with revenue, meaning the faster you grow, the more working capital you consume.
A business that needs $50,000 in working capital at $500K annual revenue might need $200,000 at $2M. That $150,000 increase comes directly out of cash — regardless of profitability. This is why profitable, growing businesses frequently run out of money.
How to calculate real runway
Real runway requires decomposing burn into committed vs discretionary, mapping cash outflow timing against inflow timing, modelling working capital requirements under growth scenarios, and stress-testing the result under adverse conditions (delayed collections, lost customers, accelerated expenses).
The Cash Reality & Runway evaluator performs this full analysis using four specialised operators. Start there to understand your real cash position. Then validate your unit economics to ensure profitability per transaction supports the business timeline.