Most owners check one number on a Monday morning: the bank balance. It feels reassuring. It is also the wrong number, because it does not tell you what is already spoken for.
Cash runway does. It is the answer to a simple question: if nothing else came in, how long could the company keep paying what it owes. Not what looks free in the account. What is actually free.
What runway is
Runway is free cash divided by average monthly burn.
Free cash is not the bank balance. It is the bank balance minus everything already committed for the period ahead: VAT you have set aside to pay, salaries and Segurança Social contributions due, rent, supplier invoices with a due date this month or next.
Average burn is what normally leaves the account in a month, taken as an average over three or six months so one unusual month does not distort the picture.
Divide the two and you get a number in months. That is your runway.
A worked example
A small agency has 48 000 euros in the bank on Monday morning. That looks comfortable.
But 21 000 euros of that is already committed this month: 6 000 for IVA due to the AT, 11 000 for salaries and Segurança Social, 2 500 for rent, 1 500 for two supplier invoices already due.
That leaves 27 000 euros of free cash.
Average monthly outflow, taken over the last six months, is 18 000 euros.
Runway is 27 000 divided by 18 000. That is one and a half months of free cash. Not the two and a half months you would get if you divided the full 48 000 by 18 000.
The gap between those two numbers, one and a half months versus two and a half, is the whole point of this exercise. The bank balance flatters. The committed list does not lie.
What a bad number looks like
There is no single threshold that fits every company, and the right one depends on how seasonal the business is and how it collects. Check what makes sense for your business with your accountant.
But a few signs are worth watching regardless of the exact number.
Runway that keeps shrinking month after month even when revenue looks stable. That usually means costs are creeping or collection is slowing, and the bank balance is masking it because invoices are still going out even if they are not being paid.
Runway under one month. At that point a single late payment from a client, or a VAT payment landing earlier than expected, can force a hard choice: delay a supplier, delay a salary, or draw on a credit line that was not planned for.
Runway that looks fine only because a large one-off payment came in. That is not runway, that is a lucky Monday. Recompute once the one-off cash has been spent.
The three moves
If the number is thin, there are three levers, and they are the same three every controller reaches for.
Invoice sooner. If work is finished but the invoice sits half drafted for a week, that week is runway you are giving away for free. Invoice the day the work is done, not the day someone remembers to do it.
Collect sooner. A client who pays in 45 days instead of 30 is quietly lending themselves your cash. A short, polite reminder a few days before the due date collects faster than a reminder sent a week after it is late.
Spend later. Not every supplier needs to be paid the day the invoice arrives. If terms allow 30 days, use the 30 days. That is not mismanagement, it is matching your outflows to your inflows instead of paying everyone as fast as possible out of habit.
None of these moves fixes a company that is fundamentally losing money. They buy time and clarity while the real problem, usually pricing or cost, gets fixed properly with the accountant.
How to compute it from your own books
Take the current bank balance from your bank feed or your accounting software.
List what is committed: IVA already calculated and awaiting payment, salaries and Segurança Social for the period, rent, any supplier invoice with a due date inside the next four weeks. Subtract that list from the balance.
Take outflows for the last three to six months from your bank statements or your bookkeeping, average them.
Divide. Write the number down. Do it again next Monday.
This is exactly the kind of number that is easy to compute once and easy to forget to update. Cifrova Business pulls the bank feed and the committed items together automatically every day, so the runway figure is sitting there each Monday without anyone rebuilding the spreadsheet. A person still decides what to do about it.
If you want to see how it connects to your accounts, book a demo or ask your contabilista certificado to look at what it means for their side of the work.
What this figure does not tell you
Runway does not tell you why the number is thin. It does not separate a temporary dip, like a big one-off supplier payment, from a structural problem, like margins that no longer cover costs. It also assumes your committed list is complete. If a tax payment or a contract renewal is missing from that list, the number will look better than it is.
Runway is a warning light, not a diagnosis. When it flashes, that is the moment to sit with your accountant and look at margin, pricing and collection together, not just the bank balance.
FAQ
Is cash runway the same as the bank balance? No. The bank balance is what is in the account today. Runway subtracts what is already committed, then divides by average monthly spend, to show how many months of truly free cash remain.
How often should a small company check its runway? Weekly is enough for most small businesses, ideally the same day each week, such as Monday morning, so the number is compared like for like over time.
What counts as committed cash? Anything already due or accrued for the period ahead: VAT set aside for payment to the AT or the AEAT, salaries, Segurança Social or Seguridad Social contributions, rent, and supplier invoices with a near due date. Check with your accountant which items apply to your specific setup.