Reporting & planning
Why Your Startup’s Cash Runway Is Shorter Than You Expected
Check why cash is below forecast, distinguish spending from payment timing and rebuild a useful view of how long your startup’s cash could last.
Your startup’s runway can shorten because cash arrives later, payments arrive sooner or the business changes. A budget showing costs broadly on plan does not prove that cash is on plan. Start by explaining the difference between expected and actual cash, then update the months ahead.
Runway means how long the available cash is expected to last under a set of assumptions. It is a planning estimate. The assumptions about sales, hiring, payments and funding matter as much as the number of months displayed.
Why the bank balance and the accounts tell different stories
Revenue may be recorded before the customer pays. An annual subscription may be paid upfront while its cost is spread across the accounting year. Equipment purchases, tax payments, borrowing and investment can also move cash differently from the profit and loss report.
The British Business Bank explains the difference between cash flow and profit: a business can show a profit while still having too little cash to meet its payments. A funded startup can face the same timing problem while deliberately operating at a loss.
First, explain how cash moved
Use the latest bank balances and checked records. Start with opening cash, add receipts, subtract payments and confirm that the result matches closing cash. Then compare that movement with the forecast for the same period.
Here is an illustrative quarterly example:
Opening cash was £300,000. The plan expected £60,000 of net cash outflow, leaving £240,000.
Customer receipts of £40,000 moved into the following quarter.
An annual payment of £20,000 fell earlier than the cash forecast assumed.
An unplanned equipment purchase used a further £30,000.
Closing cash was therefore £150,000: £240,000 less £40,000, £20,000 and £30,000.
Cash is £90,000 below forecast, but the causes are different. The customer delay needs collection dates checked. The annual payment needs the future forecast corrected so it is not counted twice. The equipment purchase is a change in the plan. Those explanations lead to different actions.
Check the assumptions that usually move cash
Customer receipts: use expected payment dates, including overdue invoices, rather than assuming every sale turns into cash immediately.
People: include planned start dates and the full cash cost of employment, recruitment and benefits.
Committed payments: check software renewals, deposits, contractors, equipment and other amounts already agreed.
Taxes and payroll: include expected payment dates, rather than assuming the money in the bank is all available to spend.
Funding: separate money received, firmly committed funding and a round or grant that remains uncertain.
Confirm that cash is available for the planned use. For example, money restricted by grant terms should not be treated as freely available for every cost. Make any uncertainty visible and check the relevant agreement.
Reforecast month by month
A quick calculation such as £300,000 divided by £30,000 of monthly net cash usage gives ten months. It only holds if that cash usage stays constant and the starting cash is available. New hires, annual payments or changing customer receipts can make that assumption unhelpful.
Replace it with a forecast of the receipts and payments in each month. Show when cash falls below the buffer you have chosen for the business. Test a few changes that matter: a later funding round, slower customer payments or a different hiring date. The British Business Bank’s cash forecast guide provides a useful starting structure.
If an AI tool built the model, check the same points. It needs the latest opening cash, realistic dates and a clear distinction between expected and committed money. A polished chart cannot tell you whether those inputs are right.
What should the founder decide next?
Focus the review on actions: which receipts need attention, which commitments are fixed, what can change and when a decision is needed. Keep the original forecast for comparison and record why the new version differs. This makes the next board conversation easier to explain.
A financial model can help rebuild your forecast. Reporting & planning keeps reports, budget comparisons and cash forecasts current, with monthly or quarterly review.
Finance leadership adds ongoing help with decisions on a monthly retainer. Both ongoing services use the Accounting package we manage for you.
If your cash outlook is hard to explain, start with a free Founder finance review. Get a scored checklist of your finance setup and clear priorities for what to improve next.
