Cash burn rate and runway calculator: how long will your cash last?

What is cash burn rate?

Cash burn rate is how fast the business is using up its cash, usually per month. There are two versions, and they answer different questions:

• Gross burn is everything that leaves the bank in a month: wages, rent, suppliers, loan repayments, drawings and tax. In the worked example below it is $30,000 a month. It tells you what the business costs to run.
• Net burn is gross burn minus the cash that comes in. In the example, $30,000 − $20,000 = $10,000 a month. It is how much the bank balance actually falls, so it is the one that decides how long the cash lasts.

A burn rate on its own says little: $10,000 a month is comfortable with $200,000 in the bank (20 months) and urgent with $20,000 (2 months). That is why the calculator turns it into a runway.

How the calculator works

Cash runway is the cash you have divided by how fast it is going:

• Net burn = monthly costs − monthly income. This is how much the bank balance falls in a typical month.
• Runway in months = cash in the bank ÷ net burn. Weeks are months × 4.345.
• Run-out date = today plus the runway, shown to the month. It is left out beyond two years, where small changes in the inputs swing the answer by a lot.

If you enter big bills due soon, they come off the cash first. Money customers owe you is shown as a separate "if your invoices are paid" scenario, because until it is in the bank it cannot pay anything.

A worked example

A small business has $40,000 in the bank. About $30,000 goes out each month and $20,000 comes in. Customers owe it $20,000 that it expects to collect. (Made-up figures to show the arithmetic.)

	Amount
Net burn: $30,000 − $20,000	$10,000 a month
Runway: $40,000 ÷ $10,000	4 months, about 17 weeks
If the $20,000 owed is collected: $60,000 ÷ $10,000	6 months, about 26 weeks
If costs are cut by 10%: $40,000 ÷ $7,000	about 6 months (5.7)
To stop the cash falling	$10,000 a month more income, or costs cut by a third

The largest lever here is the money owed: collecting it buys two more months, more than a 10% cut in costs does. Press "Load the worked example" above to see it in the calculator.

What to count as monthly costs

The most common mistake is using the expenses on the Profit and Loss. Several things take cash out of the bank without being an expense there:

• Loan repayments (only the interest is an expense).
• Owner drawings or dividends.
• GST, VAT or sales tax paid over, and income tax.
• Equipment, vehicles and other purchases recorded as assets.
• Annual or quarterly bills. Either divide them by 12 and add them to monthly costs, or put the next one in "big bills due soon".

In the other direction, income should be money received, not invoices sent. A month of strong invoicing does not help the runway until customers pay.

Getting the figures from Xero

1. Cash today: the Bank Summary report, or the balances on the dashboard, for every business account. Make sure the bank feeds are reconciled.
2. Monthly costs and income: run the Bank Summary for the last 3 months. "Cash spent" divided by 3 is a good figure for monthly costs and "cash received" divided by 3 for monthly income. Because it is the bank, it already includes loan repayments, drawings and tax. Leave out transfers between your own accounts.
3. Money owed to you: the Aged Receivables summary. See Xero aged debtors and creditors reports for how to read it.
4. Bills due soon: the Aged Payables report and your next tax return.

How much runway is enough?

There is no single right answer: it depends on how predictable your income is and how quickly you could cut costs. A common rule of thumb for small businesses is a reserve of three to six months of costs. The notes in the calculator change at 3, 6 and 12 months, the same thresholds ReportPilot uses to decide how prominently its weekly email flags a falling bank balance: under 3 months is short, under 6 months is worth acting on now, and under a year is worth watching each month.

Ways to make the cash last longer

• Collect what you are owed. Chase the largest overdue invoices first. It is often the fastest cash available.
• Invoice sooner and ask for deposits on larger jobs.
• Pay suppliers on their terms, not as soon as the bill arrives.
• Cut or pause the largest discretionary costs. Use the slider above to see what a given cut buys.
• Plan for tax. Moving the GST or VAT you collect into a separate account stops the quarterly payment eating the runway. In Australia, the Xero BAS report guide shows how to see what the next BAS will take from the bank, and how much a week to set aside, before it is due. Income tax needs its own pot too: how much to set aside for tax works out the share of every deposit to move across for GST or VAT, wage tax and income tax.
• Borrow only to bridge a gap that ends. A loan adds to cash today, but the repayments add to monthly costs, often from the first week. If the burn is ongoing, borrowing shortens the runway after a short lift. Cash flow loans for small business shows how to work out the real cost and whether a loan closes the gap.

If the business is profitable but the bank balance still falls, the profit but no cash explainer shows where the difference goes, and the guide profit in Xero but no cash in the bank explains how to trace it.

Runway assumes the same burn every month. If sales are seasonal or a large tax bill or one-off payment is coming, the 12-month cash flow forecast template shows the balance month by month and which month runs lowest. To see that low point at a glance, cash flow charts shows a closing-balance chart of a 12-month example and how to build one from Xero's Bank Summary.

Runway is about the cash you have today. If you are about to spend on a new site, a hire or a big piece of kit, cumulative cash flow adds up that project's months to show how much cash it needs at its lowest point (often more than the upfront cost) and when it pays back.

To keep an eye on the runway without a spreadsheet, managing cash flow sets out a 15-minute Monday routine in Xero: who owes you, what is due out, and the lowest point in the next four weeks.

Questions