What is cash runway?

Cash runway is the number of months a business can operate using its current cash reserves at its current burn rate. For professional service firms, cash runway indicates financial resilience: a longer runway means more time to weather downturns, pursue opportunities, or course-correct when problems arise. Monitoring cash runway provides early warning when increases in burn rate or decreases in revenue threaten financial stability.

Key characteristics

• Calculated as: Cash Balance ÷ Monthly Cash Burn

• Should account for seasonality and known significant expenses

• Minimum healthy runway: 3-6 months for established firms

• Declining runway signals need for action (cut costs, increase revenue, raise capital)

• Monitored monthly and projected forward based on forecasts

• Different from profitability: profitable firms can have a short runway if cash is tied up

Why it matters for professional service firms

Cash runway determines whether problems are inconveniences or existential threats. A firm with 6 months' runway can absorb a lost client, delayed payment, or slow quarter while executing a recovery plan. A firm with 1 month's runway faces a crisis for any disruption. Knowing your runway enables rational decision-making: at 6+ months, you can invest in growth; at 2 months, you should conserve cash. Professional service founders who monitor their runways avoid the panic decisions that come from suddenly realizing cash is dangerously low.

Real-world example

Daniel's consulting firm had $180K in cash and $65K in monthly operating expenses, suggesting a 2.8-month runway. However, analysis revealed: $45K in AR would be collected in 30 days, adding to the runway, but a $60K quarterly tax payment was due in 45 days, reducing it. Actual adjusted runway: ($180K + $45K AR - $60K tax) ÷ $65K = 2.5 months. This was uncomfortably short. Daniel implemented cash conservation (delaying non-essential spending), accelerated collections (calling overdue accounts), and won a new retainer worth $15K per month. Within 4 months, the runway was extended to 4.8 months, providing the buffer needed to operate without constant cash anxiety.