How to Calculate Business Runway and Cash Reserves
Runway is not just for venture-backed startups. For an operating business, runway tells you how many months your business survives if revenue drops or customers delay payments.
What cash runway actually measures
Runway is the amount of time a business can continue operating before exhausting its cash reserves, assuming current spending patterns continue.
For a business with predictable revenue, runway represents your shock buffer. If an economic shock hits, an import restriction is enacted, or currency depreciates, your runway dictates how many months you have to adapt your cost structure before insolvency forces your hand.
How to calculate your true monthly burn rate
Gross Burn is the total amount of cash leaving your business each month: salaries, rent, fuel, supplier payments, loan interest, and principal amortization.
Net Burn is Gross Burn minus Cash Inflows from sales and collections. If you spend ₦6 million per month and bring in ₦4.5 million in cash, your net monthly burn is ₦1.5 million.
Runway in months is simply Total Liquid Cash divided by Net Monthly Burn. If you have ₦6 million in cash reserves and a net burn of ₦1.5 million, you have exactly 4 months of runway.
“Operating with less than 60 days of cash runway means any unexpected equipment breakdown or delayed receivable can threaten payroll.”
Three rules for maintaining a durable cash reserve
Rule 1: Separate tax and loan reserves. Never count VAT, withholding tax, or upcoming loan instalments as available operating cash.
Rule 2: Build a 90-day fixed overhead buffer. High-performing owner-operated businesses maintain at least three months of non-negotiable fixed costs (rent, key salaries, utilities) in a safe, separate account.
Rule 3: Re-forecast runway whenever major commitments change. Hiring a new manager, leasing an additional space, or taking on a vehicle lease permanently raises your gross monthly burn, shortening your runway until new revenue materializes.
Don't guess with intuition. Model your numbers.
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