Cash runway explained: how many months can your business last?
The one number every owner should know — and how to improve it.
NRG Circle · 5 min read
Cash runway is the number of months your business can keep operating with the cash it has if nothing changes. Calculate it by dividing your cash in the bank by your average monthly net cash outflow — what you spend minus what you collect. A runway of three to six months is a common rule of thumb for small businesses, though the right level depends on your industry and how predictable your income is.
The cash runway formula
Cash runway (months) = cash in the bank ÷ monthly net cash outflow.
Monthly net cash outflow is the money leaving your business each month minus the money coming in. For example, if you have $12,000 in the bank and spend $7,000 a month while collecting $4,000, your net outflow is $3,000 and your runway is four months.
If you collect more than you spend, you are cash-positive and runway is not the constraint — but keep a buffer anyway, because income can dip.
What counts as a healthy runway?
Three to six months of expenses is a common rule of thumb for small businesses. Businesses with steady, recurring income can often run leaner; businesses with seasonal or lumpy income, or long payment delays, usually need more. Treat any benchmark as a starting point and check it with an accountant for your situation.
Why profit does not equal cash
A business can be profitable on paper and still run out of cash. If you invoice a customer for a large job today but they pay in 60 days, you carry the cost of the work for two months. Growing quickly makes this worse, because you pay for stock, tools and people before the money arrives.
Six ways to extend your runway
- Invoice earlier and follow up on late payers promptly.
- Ask for deposits or staged payments on larger jobs.
- Review pricing — small increases often drop straight to cash.
- Cut or pause costs that do not bring in customers.
- Negotiate longer payment terms with suppliers where you can.
- Reduce reliance on one large customer so a single late payment cannot hurt.
Practise it, and check your own numbers
Cash decisions are easier to understand when you can see them play out. In the Growth Lab simulator in NRG Circle Premium, cash is one of seven meters you manage through a simulated year, and the debrief shows which choices drained it. The Business Health Check takes your real cash, sales and costs and calculates your runway, margins and break-even point in about five minutes — your numbers are not saved. You can try both free for 14 days.
Key takeaways
- Cash runway = cash in the bank ÷ monthly net cash outflow.
- Three to six months is a common rule of thumb; your industry may differ.
- Profit is not cash — payment delays can sink a profitable business.
- Invoice faster, price properly and cut costs that do not earn.
Frequently asked questions
What is cash runway in simple terms?
It is how many months your business can keep going on the cash it has if nothing changes. Divide your cash in the bank by your monthly net cash outflow.
How do I calculate my cash runway?
Subtract the cash you collect each month from the cash you spend to get your net outflow, then divide your current cash by that number. For example, $12,000 of cash and a $3,000 net outflow gives four months.
How many months of runway should a small business have?
Three to six months of expenses is a common rule of thumb, but it depends on how steady your income is and how quickly customers pay. Ask an accountant what is right for you.
Is there a free tool to check my cash runway?
NRG Circle Premium includes a Business Health Check that calculates your runway, margins and break-even from a few numbers and tells you the first thing to fix. It does not store your numbers, and there is a 14-day free trial.