Cash divided by monthly net burn is a useful shorthand only when the burn rate is reasonably representative. Hiring, annual payments, slow collections, and changing revenue can make the shorthand misleading.
Build a monthly cash schedule that shows when money actually enters and leaves the business. Then test what changes if important assumptions are wrong.
Start with the cash bridge
For each month, calculate opening cash plus cash received minus cash paid out. The result is closing cash, which becomes the next month’s opening balance.
Distinguish revenue from collections and expenses from payment timing. An annual customer contract does not necessarily mean the entire amount arrives immediately.
Reconcile the starting balance and definitions with the person responsible for the company’s financial records.
A simplified worked example
These figures are hypothetical and illustrate cash movement, not a financing recommendation. They exclude taxes, debt, and other items a real company may need to model.
| Month | Opening cash | Collections | Cash outflows | Closing cash |
|---|---|---|---|---|
| 1 | $300,000 | $30,000 | $80,000 | $250,000 |
| 2 | $250,000 | $35,000 | $90,000 | $195,000 |
| 3 | $195,000 | $40,000 | $95,000 | $140,000 |
The monthly cash use is increasing. Dividing the initial balance by the first month’s $50,000 net outflow would suggest six months, but that estimate would not reflect the changing plan.
Build scenarios around the actual uncertainty
Create a base case from explicit assumptions. Then model a downside case such as slower collections, lower sales, or a necessary implementation delay. Add an upside case only if it helps expose the additional resources growth would require.
Change the drivers, not just the final revenue number. If sales slow, commissions, delivery costs, and collection timing may also change.
Do not include uncommitted financing as certain cash. Show it separately so the team can see the operating plan without it.
Set decision dates before cash becomes the only choice
Identify when the company would need to revisit hiring, spending, or financing activity. Account for the time required to make a change and its effect on customers and execution.
Connect the cash schedule to the fundraising readiness review so the operating milestone and financing assumptions stay aligned. Use current company data and a finance professional’s review for the actual plan.
Review the schedule against actual cash movements and explain material differences. A useful runway model is a decision tool that stays connected to the bank balance, not a forecast that becomes less believable each month.
Co-founder and CEO of Stackmatix, startup advisor, and former Head of Sales at MightyHive. Connect with Matt on LinkedIn ↗ · More about Matt →