Distress & Turnarounds

Running Out of Runway

The runway number almost everyone quotes is wrong in the same three ways — and the errors all point the same direction. Learn to compute the date you actually have to decide by.

  • Beginner
  • 8 min total
  • 12 chapters

What decision this helps you make: How long you really have before options close, and what to do at twelve months, six months, and three.

What this topic is

Runway is how long your business can keep operating on the cash it has. The usual version — cash divided by monthly burn — is a starting point that overstates the truth, because burn is not flat, some of your cash is not available, and stopping a business costs money you have to hold back before you spend it.

Why it matters

Runway is a clock on your OPTIONS, not on your existence. At twelve months you can raise, sell, or fix on reasonable terms. At three months you are a distressed seller and everyone you negotiate with knows it. The whole game is noticing early, because the cheapest month to act is always the one you are in.

Who should learn it

Any owner or founder whose business burns more cash than it makes, and anyone managing a business through a downturn, a lost customer, or a bad season.

What you will understand

  • How to compute runway honestly, including the money you cannot actually spend
  • Why cost cuts consume cash before they save it — and what that does to your timing
  • The twelve, six, and three-month decision ladder and what is available at each rung
  • The obligations that do not shrink when the business does, including the personal ones

Prerequisites

Common misconception

"I have $600,000 and I burn $50,000 a month, so I have twelve months." You do not. You have twelve months of SPENDING and rather less than that of deciding — because burn tends to rise, some of your cash is spoken for, and closing down costs real money that has to be reserved before it is spent. The number that matters is not when the account empties; it is when your last good option expires.