Know Your Cash Runway Before You Need It
Most small businesses don't fail because the idea was bad. A lot of them get into trouble because the cash ran short before the plan had time to work. When you're building the business while you're running it, it's easy to stay focused on sales and delivery and only look at cash when something feels tight. By then, your options are usually fewer and more expensive.
Cash runway is a simple idea: if money kept coming in and going out the way it does now, how many weeks or months could you keep operating? You don't need a finance degree or fancy software to answer that. You need a short monthly habit.
Start with three numbers
Once a month, write down three things:
- The cash you actually have available today, not what's owed to you.
- What you reliably spend in a typical month: payroll, rent, software, loan payments, and anything else that shows up every time.
- What you can reasonably count on coming in over the next month or two, based on signed work and invoices you're confident will be paid.
Divide available cash by your monthly spending, and you have a rough runway with no new income. Then add the money you're confident about, and you have a more realistic view. Both numbers are useful. The first tells you how much cushion you have if things go wrong. The second tells you what the next few months probably look like.
Be honest about what counts as "coming in"
The easiest way to fool yourself is to count hopeful money as real money. A proposal that's out for review isn't cash. A customer who usually pays late probably will again. When in doubt, leave it out of the main number and track it separately as "possible." It's better to be pleasantly surprised than caught short.
Look at timing, not just totals
A business can look fine on paper over a quarter and still have a rough week in the middle of it. If payroll goes out on the first and your biggest customer pays on the twentieth, that gap matters. Take a few minutes to sketch when the big payments go out and when the big deposits usually land. You'll often spot a pinch point well before it arrives.
Decide your trigger points ahead of time
The real value of tracking runway is that it lets you make decisions early and calmly. Pick a line in advance, such as a certain number of months, and decide what you'll do if you drop below it. That might mean pausing a new hire, pushing harder on collections, trimming a software subscription nobody uses, or putting more time into selling. Making that call when you're not under pressure is much easier than making it in a panic.
Make collections part of the routine
While you're looking at the numbers, check who owes you money and how long it's been. A friendly reminder sent on time is usually all it takes, and it's easier to send when it's a normal monthly step rather than an awkward one-off. Clear payment terms on every invoice help too.
Keep it to fifteen minutes
This doesn't need to be a big project. A simple spreadsheet with a row for each month is plenty. The habit matters more than the precision. If you look at the same few numbers every month, you'll start to notice trends, and you'll stop being surprised by your own bank balance.
Running a business while you're still building it means you won't always have perfect information. Knowing your runway gives you one number you can trust, and enough lead time to act on it.
If you're building your business while running it, my book Flying and Building an Airplane at the Same Time covers more practical lessons like this one. And if you'd like help setting up simple systems for your small business, take a look at my consulting page.