Cash Runway

Why it’s important

Cash Runway is a financial metric which uses current performance to calculate the duration of time the business could continue to operate before draining its cash reverses to zero. For this reason it is most commonly used by startups and businesses funded by external investment, which are operating at a net loss. A negative Cash Runway should be seen as a sign of success as it indicates that the business is in profit and growing its cash reserves.

How to create it

Step One

To create our metric in FUTRLI we’ll need to know our cumulative Bank Accounts value for the period we wish to measure our Cash Runway for and the transactional movements which have occurred in our Bank Accounts line for this and the previous five months. This information should be being sourced from our Accountancy software of choice, either automatically or via a manual upload into FUTRLI.

Once all of our data is imported or uploaded we can build our KPI. To create Cash Runway we’re going to need to use two of FUTRLI advanced formula options. First, we’re going to have to change the data set of individual forecast items from Cumulative to Transactional and second, we’re going to need to use period offset, which allows us to reference the value of an account line in prior reporting periods. First, use the Chart of Accounts box to select your Bank Accounts line. By default, any Balance Sheet line you add to a formula will be set to display cumulative data. Add a divide symbol after your newly added line and then a bracket. We’re now going to start the complex part of our formula.

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Cash Runway is calculated by dividing our current Bank Accounts balance by zero, minus our average monthly cash movements for the past 6 months. To perform the second part of calculation, we first need to add a zero, several brackets and then the transactional value of our Bank Accounts line for this and the past 6 months. Add your Bank Accounts line to the calculation again and this time click into the item by selecting where the dropdown arrow appears next to ‘Bank Accounts’. Select ‘Transactional data’ as your data set.

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Now we need to add the transactional value of our Bank Accounts line for the five months prior to our current reporting period. We can do this by selecting the add symbol and then adding our Bank Accounts line again. This time we’re going to click into the line and change the data set to transactional and select a period offset of 1 period.

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Repeat this process for the following four Bank Accounts lines, selecting 2, 3, 4 and 5 periods ago. Then divide this calculation by 6 to get the average and add two more brackets so that your calculation looks like that below. You can now save your formula and see the result. To save time in the future, why not copy this formula to your library?

Cash Runway

Step Three

Once you’ve created your formula, you can view your Cash Runway report.

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