What cash runway means
Cash runway is how long your business can keep paying its bills from the cash it has, if the money coming in stays at its current (or expected) level. For seasonal contractors in Minnesota and Wisconsin, it’s the question that matters every winter: will the cash we built up in the busy season carry us to spring?
How the calculator works
- Money earned in a slow month = expected revenue × gross margin. Only the gross profit is available for fixed costs, because the rest pays for that work’s materials and labor.
- Net cash used per month = monthly fixed costs − money earned.
- Runway = cash in the bank ÷ net cash used per month.
With $60,000 in the bank, $32,000 of monthly fixed costs and $40,000 of slow-season revenue at a 30% margin, the business uses $20,000 a month and has about three months of runway.
Ways to stretch the runway
- Collect faster. Unpaid invoices are cash you’ve already earned. Tighten billing and follow-up before the slow season, not during it.
- Bill progress and deposits. Mobilization deposits and progress billing on longer jobs keep cash ahead of costs.
- Time big purchases. Equipment and trucks bought in the fall shorten winter runway. Financing or timing can change that.
- Line up credit before you need it. Banks lend more easily to a business with current financial statements and healthy numbers. See our DSCR calculator.
A runway number is a snapshot. A monthly cash outlook shows the dips coming weeks ahead, including payroll, tax payments and seasonal swings.
Common questions
How do you calculate cash runway?
Divide the cash you have by the net cash your business uses each month. Net cash used is your fixed monthly costs minus the gross profit from the revenue you still expect to bring in.
How many months of cash should a contractor keep?
Many advisors suggest at least two to three months of fixed costs as a reserve, and more for highly seasonal businesses. The right amount depends on your slow season, your receivables and whether you have a line of credit.
Should I count my line of credit as runway?
It extends runway, but it’s borrowed money that has to be repaid, usually from next season’s profits. The calculator shows runway with and without it.
This calculator gives estimates for general planning. It isn’t tax, legal, lending or accounting advice for your specific situation, and lenders may calculate figures differently.