How long will your cash last? Runway, burn and break-even

Three numbers tell you most of what you need to know about a small business: how fast the cash is going, how long it lasts, and how much you have to sell before the bills that arrive anyway are covered. All three are arithmetic. All three are routinely got wrong.

Runway is not one division

Cash divided by monthly burn is the version everyone knows, and it is correct only when the burn is flat. The moment you assume any growth — revenue rising, or costs rising with it — the burn changes every month, and a single division quietly ignores that.

The honest way is to step month by month: apply the growth, recompute the month's profit or loss, subtract it from the cash, repeat. Do that and a business that looks like it has eleven months can turn out to have seven, or eighteen. The difference is not a rounding error; it is the decision you are about to make.

Break-even is fixed costs over gross margin

Break-even revenue is the sales figure at which you stop losing money: fixed costs divided by gross margin. If your gross margin is 40% and your fixed costs are £8,000 a month, you need £20,000 of sales to break even.

If gross margin is zero or negative, break-even does not exist at any volume. Selling more makes the loss bigger. A tool that prints a number here rather than saying “unreachable” is doing real damage, because the number looks like a target.

If you lose money on every sale, you cannot make it up in volume. That is not a joke about startups; it is what a negative gross margin means.

The split that decides everything

Direct costs scale with each sale. Fixed costs arrive whether you sell or not. Getting a cost into the wrong bucket is the single most common reason these numbers mislead.

• Direct: materials, payment processing fees, per-customer hosting, delivery contractors, commission.
• Fixed: salaries, rent, software subscriptions, insurance, accountancy.
• The awkward ones: a part-time contractor you use only when work comes in is direct. A retainer is fixed. Same person, different bucket.

Move one salary from fixed to direct and your break-even moves thousands. It is worth ten minutes with the list rather than a guess.

What the arithmetic cannot see

This is a calculator, not an accountant. It does not know your tax position, when your receivables actually land, whether your trade is seasonal, or what your debt schedule looks like. A business with twelve months of runway and a large VAT bill due next quarter does not have twelve months of runway.

Use the numbers to frame the conversation, then have the conversation with someone who knows your books.