The month you run out

Every business that stops has a date on which it stopped, and for most of them that date was computable at the beginning.

Not the reason it stopped. Reasons are various and interesting. The date is arithmetic: money in the account, minus what leaves each month, plus what arrives, until the subtraction wins.

The useful habit is to compute it before starting rather than after, because before starting it is a planning input and after starting it is news.

The simple version, which is already uncomfortable

Start with no revenue at all. One person, working full time, on savings.

Runway

≈ Hypothetical model, not a forecast

Months a cash balance survives when revenue and costs each grow at their own rate.

It assumes

• Costs are the same every month, with no seasonality and nothing unexpected.
• No revenue arrives at all during the whole period shown.
• Money spent is available the month it is needed, with nothing held up.
• The person doing the work needs nothing beyond the stated monthly costs.

It ignores

• Payment terms, so nothing sits in receivables or payables
• Any funding round, loan or asset sale arriving to save the balance
• Seasonality, one-off costs and the cost of cutting costs
• That growth rates this steady have never been observed anywhere

Get to eighteen complete months of runway. There are two levers and both work — note which one you reached for first, and what it would cost in real life.

Cash today30,000

Costs this month2,500

Net burn this month

2,500

Complete months of cash

12

Cash runs out inside the horizon

1

Month revenue first covers costs

36

Breakeven happens inside the horizon

0

Cash at the horizon

-60,000

Lowest the balance gets

-60,000

• Cash balance
• Net each month

◷ Not there yet — keep moving the controls.

Twelve months at the opening numbers. Reaching eighteen takes 45,000 in the account — or a monthly cost of 1,000, which overshoots to thirty months and tells you how much leverage the cost side has.

Notice which lever people reach for. Raising the cash is a plan that depends on someone else — savings you may not have, money someone else may not give you. Lowering the burn is a decision available this afternoon. Six months of extra runway is a genuinely large amount of additional chances, and one of the two routes to it is entirely under your control.

Burn is not one number

The flat line above is the friendly version. Two things happen to it in reality and they pull in opposite directions.

Costs drift upward. Not through carelessness — through ordinariness. A tool here, a contractor there, a supplier raising prices, the thing you did yourself in month two that someone is now paid to do. Assume a couple of points a month and you will not be far off.

Revenue, if it arrives at all, arrives late and grows from a small base. The question that decides everything is whether the second line catches the first before the cash reaches zero.

Predict

A business has 30,000 of cash, revenue of 1,000 a month against costs of 4,000, and costs creeping up about 2% a month. Roughly what monthly revenue growth does it need to reach breakeven before the money runs out?

Choose one answer

About 4% a monthAbout 8% a monthAbout 13% a monthAbout 25% a month

Lock in answer

The race, run properly

Same figures. The only control is the revenue growth rate.

Runway

≈ Hypothetical model, not a forecast

Months a cash balance survives when revenue and costs each grow at their own rate.

It assumes

• Revenue and costs each compound at a steady rate every single month.
• Every customer pays in the month they are invoiced, with nothing outstanding.
• No funding, loan or asset sale arrives to extend the balance.
• Growth this smooth has never been observed in a real business anywhere.

It ignores

• Payment terms, so nothing sits in receivables or payables
• Any funding round, loan or asset sale arriving to save the balance
• Seasonality, one-off costs and the cost of cutting costs
• That growth rates this steady have never been observed anywhere

Find the lowest growth rate at which revenue covers costs before the cash runs out. Then look at how much was left in the account at the worst point.

Revenue growth a month6%

Net burn this month

3,000

Complete months of cash

9

Cash runs out inside the horizon

1

Month revenue first covers costs

36

Breakeven happens inside the horizon

0

Cash at the horizon

-58,857

Lowest the balance gets

-58,857

• Revenue
• Costs
• Cash balance

◷ Not there yet — keep moving the controls.

Thirteen points a month clears it, with under a thousand in the account at the low point. Twelve and a half does not.

That is the actual shape of the thing: the difference between a business and a closed business was half a point of monthly growth, decided about eleven months before anybody found out.

Two adjustments the model does not make

Payment timing. The model assumes money arrives the month it is earned. Sell to businesses and the gap between the invoice and the payment is commonly one to three months, which means the cash line is behind the revenue line for the whole period. Track 3 called this the reason profitable companies die.

The cost of stopping. Winding down is not free. Notice periods, contracts, a last month of everything while the revenue has already gone. Reaching zero cash is not the end of the obligations, so the real floor is above zero by whatever the exit costs.

Both push the date earlier. Neither is in the arithmetic above.

Check

A founder computes eleven months of runway. What is the most useful thing to do with that number?

Choose one answer

Write down the date, decide in advance what must be true by month eight, and agree what happens if it is notWork out how to extend it to eighteen months before startingTreat it as the deadline and work towards itRecompute it monthly and watch the trend

Check answer

›The month-eight conversation, written in month oneOptional

The single cheapest thing available here is a sentence written before starting: if by month eight we do not have X, we stop and do Y.

It is cheap because it is written by a person with no sunk cost, no exhaustion and no audience. The same person in month eight has all three, and will be extremely good at explaining why the criterion was never quite the right one.

X should be something a stranger could check — a number of paying customers, revenue at a level, a signed commitment. Not a feeling about momentum.

Worth remembering

• Runway is the number of complete months the business survives at current rates, and it resolves to a date that can be computed before starting.
• Lowering the burn and raising the cash produce the same runway, but only one of them is a decision available today.
• Costs drift upward without anyone deciding to, so a flat burn assumption is optimistic by default.
• Assume a business starting at a quarter of its costs: reaching breakeven before the cash runs out can demand growth in the low teens per month.
• Runway buys attempts, at roughly a quarter per attempt, so every purchase costs a fraction of an attempt.