Cash runway gauges how long your business or enterprise can operate before your funds run dry – an important metric for hospitality businesses, from cafes to restaurants. In an industry where seasonal demand and fluctuating footfall are the norm, knowing your cash runway means understanding how far your current funds will take you through both busy and quieter months.
For hospitality businesses, a cash runway analysis helps future-proof your business to stay resilient, maintain a stable cash flow, and keep the doors open – even when demand dips.
In this guide, we’ll cover:
- What is a cash runway?
- Cash runway analysis
- How to calculate cash runway
- Cash runway formula
- Cash runway vs burn rate
- Why is cash runway important?
- Types of cash flow
- How to extend your cash runway
- Do more with Dojo
- FAQs
Lifeline to growth: What is a cash runway?
A cash runway estimates how long your funds will last before the money runs out, based on your operating costs and incoming revenue.
It gives you a clear timeline for how long your business can stay open. The longer your runway, the more flexibility you have to make decisions without financial stress. It’s a simple but crucial concept for keeping your restaurant, bar, or pub on track.
Breaking it down: Cash runway analysis
A cash runway analysis helps you identify what factors affect your runway. Regular check-ins keep you ready for any monthly shifts or surprise costs.
How to calculate your cash runway
First, work out your burn rate by adding up your monthly expenses – things like rent, staff wages, and utilities. Then, divide your current cash reserves by this number.
This cash runway calculation will tell you how many months your business can keep running at its current spending pace.
Cash runway formula
Calculate the cash runway using the following cash runway formula:
Cash runway = current cash reserves / burn rate
Example
If a business has £150,000 in cash reserves and a monthly burn rate of £30,000, then:
Cash runway = £150,000 / £30,000 = 5 months
This means the business can keep operating for 5 months with its current cash reserves.
Cash runway vs burn rate
The burn rate tracks how much cash your business spends each month, while the cash runway formula shows how long those reserves will last at the current burn rate.
Essentially, the burn rate measures spending speed, and the cash runway tells you how much time you have left.
What’s a good cash runway?
Generally, a runway of 12-18 months is considered healthy. The higher your cash runway, the better – as this indicates financial stability.
Typically, the cash runway for enterprises tends to be longer – around 12 to 24 months – compared to small businesses. This is because they usually have larger cash reserves, more diverse revenue streams and greater access to external funding.
Smaller businesses meanwhile often work with tighter margins and less cash in reserve – especially during periods of minimal demand or unexpected expenses. A good runway for these is generally considered anywhere between 6 to 12 months.
From revenue to reserves: Types of cash flow
- Company: These are the everyday costs – rent, utilities, and supplies – that keep your business running.
- Team: Employee wages, including salaries, tips, and benefits, make up a significant portion of your monthly expenses in hospitality.
- Founder: In quieter periods, owners sometimes dip into personal reserves to keep things going, especially in smaller or family-run businesses.
- Investment: Investor funds can help ease cash flow pressures, but they often come with expectations for rapid growth, which isn't always in line with seasonal demand.
Maximising mileage: How to extend your cash runway
Generate new revenue to extend your cash runway
Tweaking your pricing can give your cash runway a boost, especially in hospitality. Offering premium services or adjusting prices for seasonal demand, particularly as a quick-service restaurant or full-service restaurant, helps keep revenue flowing, even during quieter times.
Running promotions, discounts, or bundled deals on slow days can also drive more foot traffic and increase spend per visit.
With Dojo’s reliable tech and next-day payments, every transaction lands in your account fast, supporting a steady cash flow and helping you keep revenue up through quieter periods. When revenue flows consistently, so does confidence in your financial runway.
Reduce expenses for operational efficiency
Lowering costs – a key principle of operational efficiency – can quickly extend your cash runway. Look for ways to cut back – whether it's reducing energy consumption, optimising staff schedules, or securing better deals on supplies.
Chat with your vendors about locking in better rates, automate tasks to save on payroll, or fine-tune your stock to cut waste and lower storage costs. Small tweaks to everyday spending can go a long way in extending your runway.
Optimise cash flow management
Maximising your existing cash flow helps stretch your runway. Reducing disruptions from issues like outages or delayed payments helps maintain a steady revenue stream – and with our next-day payments, you can keep cash flowing, so late payments won’t hold you back.
Elevate your payments by adjusting terms and setting up automated reminders to avoid any delays. Keeping cash flow steady means your funds are ready when you need them, so you can plan confidently for the next season or that big expansion.
Improve accuracy with better reporting
Get a clear view of your sales trends, spending categories, and spot issues faster with detailed reporting. With better data at your fingertips, you can forecast more effectively and make proactive adjustments while staying on top of expenses before they cut into your runway.
Tools like consolidated billing and insights from the Dojo for business app provide a clear picture of your finances, helping you make informed decisions to extend your runway.
Do more with Dojo
With Dojo, keeping your cash flow steady is simple. Our reliable card machines are built to accept card payments even during outages, so your business keeps going. And with next-day transfers, you’ll see the money in your account fast, helping you build that all-important cash runway for quieter periods.
We’re all about helping you stay ahead, no matter the season. Want more tips on keeping your cash flow strong? Check out our blog for insights on how we can help your business thrive.
