Build a buffer against surprises and know how long you could survive a downturn, so a bad month is not an existential event.
Calculate your runway and set a reserve target. Runway is the number that turns "are we okay?" into "we have X months," which you can actually manage. Fill in each line to find yours.
| Calculation | Your number |
|---|---|
| Essential monthly cash out (what it costs to operate) | |
| Current cash on hand | |
| Runway equals cash on hand divided by monthly cash out (in months) | |
| Reserve target (for example, three to six months of essential costs) |
A short runway is not a failure to hide; it is a risk to close deliberately, by building the reserve over time and tightening the cycle. The right reserve size depends on how volatile your revenue is: steadier businesses need less, lumpier ones need more.
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