Tracking burn and runway from your own books
How a software start-up works out monthly burn and cash runway from reconciled bank balances and its income statement, without a cash flow statement.
By Achekam · · 4 min read · For Software (SaaS) businesses in South Africa, Nigeria, Kenya
Every start-up founder carries one number in their head, whether they admit it or not: how many months until the money runs out. Investors ask for it in every update. The board asks for it before every hire. And it is surprisingly often wrong, because it was worked out from the income statement, or from a bank balance on a good day, or from a spreadsheet nobody has updated since the last round.
Burn and runway are cash measures. Your books can give you everything needed to calculate them properly, as long as you know which figures to take and which to leave out. This article shows how, using Achekam's reports.
Burn and runway in plain terms
Three definitions, used the same way every month:
- Gross burn is all the cash that left the business in the month: salaries, hosting, rent, tools, tax payments, everything.
- Net burn is gross burn minus the cash that came in from customers in the same month. Money from new shares or loans is not customer cash and stays out of net burn.
- Runway is cash at the end of the month divided by net burn: the number of months you could keep going at the current rate if nothing changed.
Some investors prefer an average of the last few months' net burn to smooth out a lumpy month, such as one with an annual insurance payment. Choose one method, write it down and keep it.
Cash at month end from reconciled bank accounts
Runway starts with cash, and cash is only reliable once the bank accounts are reconciled. Import each month's statements as PDF, CSV, Excel, OFX, QIF, MT940 or CAMT.053; each import is checked so that the opening balance plus the movements equals the closing balance. Bank lines are matched by suggestion with a person accepting each match, and a reconciliation completes only when nothing is left unexplained.
Once every account is reconciled for the month, take the closing balances from the trial balance at the month-end date. Include every account the business can actually spend from: the main current account, a dollar account if you have one, a savings or call account. Leave out money that is not yours to spend, such as a deposit held for a customer.
Operating costs from the income statement
Management accounts show an income statement for a chosen period beside the period before, added up from your own journals, and exportable as PDF or CSV. The operating costs there are the starting point for burn, but they are not the same as cash out. Adjust for the usual differences:
| Item | In the income statement | In cash burn |
|---|---|---|
| Depreciation of laptops and servers | A monthly cost | Not cash: leave it out |
| Laptops bought this month | Not a cost (on the register) | Cash out: include it |
| Annual tool licence paid upfront | Spread over the year, if you defer it | All cash out in the month paid |
| Salaries | Gross cost | Net pay this month, tax paid over next month |
| Customer invoices | Revenue when issued | Cash only when paid |
The fixed-asset register depreciates equipment monthly with its own journal, which is exactly why depreciation needs taking out: it reduces profit without touching the bank.
Why there is no cash flow statement to read yet
At the time of writing, the books do not produce a cash flow statement. That is why the method above starts from the bank. It is not a weakness in the method: for a start-up, a simple cash summary taken from the reconciled bank accounts is often clearer than a formal statement anyway.
Build it as four lines each month: opening cash, cash in from customers, cash out, and closing cash. Add a fifth line for money raised from investors or lenders, kept separate so it never flatters net burn. The closing figure must agree with the reconciled bank balances; if it does not, something is missing.
ACCA's article on cash budgets explains how to build a forward view from expected cash inflows and outflows, with a worked example. The same layout works for the months already behind you.
Budgets per account and month for the plan
Looking back tells you the burn; looking forward tells you the runway that matters. A business can set a budget per account and per period in Achekam and compare it with actual figures from the ledger.
Load the board-approved plan by account and month: planned hires in salaries, expected hosting growth, the marketing budget. Each month, compare actuals with the budget before writing your runway note. If burn is running ahead of plan, the runway figure that matters is the forward-looking one, worked out from the plan as it now stands, not last month's actual.
A monthly runway note for the founders
Close the month first; a closed month refuses postings from every source, so the figures cannot change after you report them. Then write a short note with:
- Closing cash, from the reconciled bank balances.
- Gross and net burn for the month, and the average you use.
- Runway in months at the current net burn.
- Runway on the plan, using budgeted burn for the months ahead.
- One paragraph on what changed and what you are doing about it.
Share the same figures with investors in your monthly update, and if you want a model for how a partner-led business reads its own reports, see management accounts for partners.
The first note
Reconcile last month's bank accounts, take the closing balances, and work out net burn with the adjustments in the table. Write the note, even if it makes uncomfortable reading. A runway figure you trust, calculated the same way every month, gives you time to act while there is still time to act.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
