Why Runway Matters More Than You Think

Sales can be strong. Profit margins can look fine. But if you have high expenses and slow collections, you can still be weeks from a cash crunch. Runway shows you how much breathing room you truly have.

If your runway is long, you can take more strategic risks. If it is short, you need to focus on collecting payments faster, trimming expenses, or increasing high margin sales immediately.

Step by Step: Calculating Your Runway Using QuickBooks

Step 1: Gather your current cash and equivalents

1. In QuickBooks Online, go to Reports.
2. Search for and run the Balance Sheet report.
3. Find the Cash and Cash Equivalents line. This includes checking accounts, savings accounts, and petty cash.
4. Add any short term, highly liquid investments you can quickly convert to cash.

Step 2: Add collectible accounts receivable

1. In QuickBooks Online, search for the Accounts Receivable Aging Summary report.
2. Focus on receivables that are current or less than 30 days overdue.
3. Exclude any invoices you believe will not be collected.
4. Add the collectible total to your cash from Step 1. This is your Total Available Funds.

Step 3: Determine your average monthly expenses

1. In QuickBooks Online, search for the Profit and Loss report.
2. Set the date range to the last 3 months.
3. Add up your total expenses for the period.
4. Divide by 3 to get your Average Monthly Expense.

Step 4: Calculate your runway

Use the formula:

Runway (in months) = Total Available Funds ÷ Average Monthly Expense

Example:

• Cash and equivalents: $50,000
• Collectible receivables: $20,000
• Total available funds: $70,000
• Average monthly expense: $35,000

Runway = $70,000 ÷ $35,000 = 2 months

How Often Should You Update Your Runway

• Most small businesses: Check it monthly after you close the books for the prior month.
• Volatile cash flow businesses: Construction, seasonal retail, and event services should check it every two weeks.

Industry Specific Rules of Thumb

• Professional services (consultants, agencies): Aim for 3 to 4 months of runway since revenue is often project based.
• Trades (HVAC, electrical, plumbing): Aim for 2 to 3 months because payments are tied to project completion but usually steady.
• Retail or e‑commerce: Aim for 4 to 6 months, especially if inventory turnover is slow or you rely on seasonal sales spikes.
• Restaurants: Aim for 1 to 2 months since cash flow is frequent but margins are tight.

Alternative Methods If You Do Not Use QuickBooks

• Use a spreadsheet with your bank balances, collectible receivables, and expense history.
• Pull numbers from equivalent reports in Xero, FreshBooks, or Wave.
• Use a financial dashboard tool that connects to your bank and accounting data.

What To Do If Your Runway Is Short

1. Speed up collections: Offer discounts for early payment and follow up on overdue invoices weekly.
2. Reduce expenses: Cut low ROI marketing, renegotiate supplier terms, and delay non essential purchases.
3. Increase high margin sales: Focus on the products or services with the best profit contribution.

Bottom Line

Your runway is not just a number. It is a safety net and a decision making tool. Check it monthly, know your number, and take action before your cash cushion gets too thin.