How to Calculate Cash Runway with a Reserve

Collect cash figures rather than profit figures

Start with cash available for business payments now. Leave out money that is restricted, promised but not received, or tied up in an unpaid invoice. Choose a reserve separately; this could be a buffer you want to preserve for an orderly change of plan. It is your assumption, not a standard imposed by this tool.
For incoming cash, estimate receipts expected to arrive during a typical month. For outgoing cash, include the payments you expect to make, including owner payments, loan payments, tax payments and equipment purchases where relevant. Use a consistent scope and avoid counting a payment twice. The Australian Government’s cash-flow guidance distinguishes cash movement and forecasting from simply recording sales.

Calculate usable cash and net burn

Usable cash = available cash − protected reserve.
Monthly net burn = monthly cash payments − monthly cash receipts.
When net burn is positive, runway in months = usable cash / monthly net burn.
If cash is 50,000 and the reserve is 10,000, usable cash is 40,000. Receipts of 8,000 and payments of 13,000 create a 5,000 monthly burn. Dividing 40,000 by 5,000 gives 8 months until the reserve is reached under a steady-flow assumption.

Enter and interpret a scenario step by step

1. Reconcile the starting cash amount with the accounts you are actually including.
2. Enter the reserve and confirm it is no greater than cash.
3. Estimate monthly receipts and payments over a relevant planning window. Use a dated forecast when conditions change quickly.
4. Read the runway and monthly net cash flow together.
5. Repeat with a slower-collection scenario and a higher-payment scenario. Record what would trigger a review, such as a customer paying late or a planned cost beginning.

Compare the effects of changing cash flows

All three examples start with 40,000 usable cash. A difference of 2,000 in monthly collections materially changes the modeled buffer. No scenario assumes that a sales target will actually be collected.

Handle zero burn and fractional months carefully

If receipts equal payments, this model has no ongoing depletion. If receipts exceed payments, cash grows under the assumptions. Neither case proves that a large bill can be paid before a customer settles an invoice. A zero opening buffer with positive net burn produces zero runway above the reserve.
A value such as 5.7143 months is an even-flow estimate, not an exact shutdown date. There is no universal number of days in a month, and the tool does not assign payment dates. Do not turn the decimal into a confident calendar deadline.

Use a dated forecast for the next decision

List opening cash, receipts, payments and closing cash by week or month. Roll each closing balance into the next opening balance. This reveals a shortfall hidden by averages, especially around payroll, seasonal inventory or annual bills. The reserve can be checked at every interval.
Common mistakes include using booked revenue as if it were cash, including an undrawn credit facility as a bank balance, omitting debt principal because it is not an expense in a profit calculation, and ignoring a one-time payment. Runway is most useful alongside this detailed schedule and a realistic action plan. It does not determine whether a business is legally solvent.

Common questions

Sources

• Australian Government: set up a cash flow statement