What is my cash runway?

Cash Runway

Liquidity Measures

Liquidity is a means of understanding a company’s susceptibility to either current of future financial distress. It also helps build a risk profile of the business. But remember though that a single “safe” liquidity measure does not exist across all industries. Likewise, some industries traditionally and successfully trade at low liquidity levels, whereas for others, the same figure is a sign of distress. One indicator of liquidity is understanding your the amount of cash that your company has as its disposal should all revenue sources dry up. But what is my cash runway?

Cash Runway

Cash Runway

How do you get your runway? Your runway is the amount of cash at hand compared to your average monthly gross burn rate. The measure shows the number of months (or part months) cash available to your business.

What does it mean?

Suppose that all sales stopped within your business tomorrow. How long could your business remain solvent? This measure, tells you, in the number of months, how many months your business could survive or remain solvent should all your income streams dry up – such as in a Covid lockdown, or other catastrophic event.

Check your cash runway with Jazoodle now.

How do we derive your cash runway?

Definition used:

Your company’s cash runway is calculated by the following:

Total cash at hand or in bank

Divided by

Average monthly gross cash burn rate

How Can I Improve My Cash Sustainability?

Your runway can be improved by a number of measures or changes, including:

  • Increase sales revenues
  • Reduce the time you take to collect your client invoices
  • Increase the time you take to pay your suppliers
  • Reduce your short term liabilities and expenses

Video: Cash Runway

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