Cash Runway and Burn Rate for Online Stores

Cash runway is the number of months your business could keep paying its bills with the cash it has now, if money keeps coming in and going out at the current pace. For an online store it answers a practical question: how long until the bank balance runs out if nothing changes?

The answer depends on two numbers, the cash you hold and your monthly burn rate. Both are easy to get wrong in ecommerce, where stock is paid for months before it sells and payouts arrive days after each order.

The cash runway formula

Cash runway = cash in the bank ÷ net monthly burn

Net monthly burn is what goes out of the bank each month minus what comes in. Use cash movements, not your profit and loss statement: the dates money actually left and reached your account.

There are two burn rates to know:

• Gross burn is everything you pay out in a month: suppliers, freight, ads, shipping, payroll, software, rent, loan repayments and tax.
• Net burn is gross burn minus the cash you receive, such as store and marketplace payouts.

Runway uses net burn. If more cash comes in than goes out, net burn is zero or negative, and the business is not using up its cash at all.

A worked example

A store has $180,000 in the bank. Over the last three months it averaged $140,000 a month of payouts and $165,000 a month of payments.

Seven months looks comfortable. Now add what is already committed. The store has a $60,000 holiday stock order due to its supplier next month, a payment its three-month average does not include. Take it off the cash first:

($180,000 − $60,000) ÷ $25,000 = 4.8 months

The store has more than two months less than the first answer suggested. That difference is why runway in ecommerce needs the stock calendar next to it.

Getting the inputs right for an online store

1. Average three months. One month of payouts swings with promotions, payout timing and refunds. A three-month average gives a steadier burn rate.
2. Count cash, not stock. Inventory on the shelf is not cash until it sells. Leave it out of the cash figure, even though it is an asset on the balance sheet.
3. Take committed payments off first. Supplier balances, a tax bill or a loan repayment that is already agreed comes out of today's cash before you divide.
4. Allow for payout delays. Sales made today can take days to reach the bank, and marketplaces often pay out every two weeks. Count a payout when it lands.
5. Include ad spend on cards. Ad platforms often charge a credit card. The card bill is cash going out, even if it is paid a month later.
6. Plan around the low season. If sales drop after the holidays, work out runway with the slow months' payouts as well, not only the busy ones.

What a short runway is telling you

If runway is under six months, start acting now. Selling stock, cutting costs or arranging funding all take time, and lenders offer better terms to a business that is not yet short of cash.

How to make your cash last longer

• Order stock in smaller batches or ask suppliers for longer payment terms, so less cash sits in a warehouse.
• Cut ad spend that does not pay back. The true break-even ROAS calculator shows the return each campaign needs once product, shipping and fees are counted.
• Turn slow stock back into cash. The dead stock calculator shows how far you can discount it before storage costs eat the profit.
• Time owner pay. The owner draw calculator shows what you can take out while leaving enough for tax and running costs.
• Compare funding before you need it. The working capital cost calculator compares revenue finance, a bank loan and equity.

See your runway every day in Nummbas

The Nummbas dashboard shows cash runway from your QuickBooks or Xero data, or estimates it from 90 days of connected bank activity, and says which source it used. The Weekly Digest email includes a runway update every Monday.

Cash runway FAQs

What is a good cash runway for an ecommerce business?

Six months or more gives time to react to a slow season, a delayed shipment or a change in ad costs. Under three months, act now: reduce spending, sell slow stock or arrange funding before the gap appears.

What is the difference between burn rate and runway?

Burn rate is how much cash the business uses each month. Runway is how many months your current cash would last at that burn rate. Divide cash in the bank by net monthly burn to get runway.

What is the difference between gross burn and net burn?

Gross burn is all the cash you pay out in a month. Net burn is gross burn minus the cash you receive in the same month. Runway is calculated with net burn.

How do I calculate runway if my store is cash positive?

If more cash comes in than goes out each month, net burn is negative and the cash will not run out at the current pace. Check the weeks instead: large supplier payments or a tax bill can still leave a short gap, which a 13-week cash flow forecast shows.

Should inventory count as cash when calculating runway?

No. Stock becomes cash only when it sells and the payout reaches your bank. Count only money you can spend now, and take planned stock purchases off it before dividing.