Build a forecast from real payment dates
Start with available cash and map expected receipts and payments by week or month. Include payroll, contractors, software, tax payments, loan obligations and one-off costs where relevant. Separate committed payments from discretionary spending. Reconcile the forecast to bank activity and update assumptions as facts change.
Define burn rate before using it
Gross burn usually refers to cash operating outflows over a period. Net burn generally considers operating outflows less operating inflows. State exactly what you include. Financing receipts can increase cash without proving the business is generating it. Volatile receipts make a single month a weak basis for planning.
Treat runway as a scenario
A simple runway calculation divides available cash by average monthly net burn. It assumes burn stays stable and cash remains available. Hiring, annual bills and customer delays can change the result substantially. A dated forecast is more informative when spending or receipts are uneven.
Agree action triggers early
Model a slower-sales case and a delayed-payment case. Decide which hiring, supplier or product commitments would change if cash falls below a chosen level. Review these decisions before pressure becomes acute. Discuss company-specific obligations with your accountant or adviser; a planning formula cannot establish solvency.
Your next steps
- Reconcile the opening balance.
- Separate sales forecasts from cash receipts.
- Include annual and one-off payments.
- State the burn-rate assumptions.
- Document actions for a downside scenario.