Cash runway estimates how long available cash lasts at a positive monthly net burn. Working capital is current assets minus current liabilities. One focuses on cash flow; the other is a balance-sheet snapshot. Positive working capital does not guarantee that cash will arrive before a bill is due.
Begin with cash you can actually use
Start with the cash available to fund the business. Exclude amounts that are restricted or already committed to a purpose you cannot change. Then list the cash you collect and pay out each month. Use receipts rather than unpaid invoices, and actual payment expectations rather than accounting labels alone.
Suppose a business has ₹12,00,000 available, collects ₹1,00,000 monthly and pays ₹2,50,000. Its net monthly burn is ₹1,50,000, giving a simple runway of eight months. This assumes the same cash flows every month. It does not predict collection delays, changes in demand or new funding.
Read working capital alongside payment dates
A business with ₹9,00,000 of current assets and ₹5,00,000 of current liabilities has ₹4,00,000 of working capital and a current ratio of 1.8. But the current assets might include inventory and receivables that cannot be turned into cash immediately.
If ₹2,00,000 is inventory and ₹50,000 is prepayments, the tool’s quick-assets calculation leaves ₹6,50,000 and a quick ratio of 1.3. This narrows the view, but it still does not tell you whether receivables will be collected before wages, rent and supplier payments fall due.
Build a simple forward cash calendar
Do not count the same expected receipt twice. A sale may already be in receivables, but only its collection belongs in the cash forecast. Similarly, an annual software fee belongs in the month you expect to pay it even if it appears as a monthly expense in management accounts.
- List opening cash for each period.
- Add receipts expected within that period, with realistic collection dates.
- Subtract operating payments, loan instalments and known one-off commitments.
- Keep tax and other amounts set aside for specific obligations visible.
- Record the closing balance and the next period’s opening cash.
Stress-test the assumptions before making commitments
Run a second scenario with slower receipts and higher outflows. In the eight-month example, lowering monthly inflow to ₹50,000 increases burn to ₹2,00,000 and shortens runway to six months. That change is useful to see before committing to a new fixed payment.
If inflows equal or exceed outflows, the simple runway model reports no cash depletion. That is a description of the entered assumptions, not a promise that the business will never run short. Review the forward calendar for seasonal troughs and large one-off payments.
Use the runway and working capital tools together, then discuss the underlying records and forecast. The most useful number is one you can explain: where it came from, when the cash moves and which assumptions could change.
Common questions.
Is working capital the same as cash?
No. Current assets can include stock, receivables and prepayments. Review available cash and collection timing separately.
What is net cash burn?
Cash outflow minus cash inflow for the period. Use collections rather than booked revenue.
Can a profitable business run short of cash?
Yes. Sales on credit may be collected after supplier, salary or other payments become due. Profit and cash timing answer different questions.
Educational pricing examples. Confirm the requirements and treatment that apply to your circumstances. This article does not make a filing or registration decision for you.
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