The cash planning tool for startups — a quick guide to runway

Marcus Gosling

Successful cash management is about knowing your starting point (initial cash balance) and accurately planning/forecasting your future revenue and expenses. A good plan allows for the right investments while minimizing your risk of running out of cash.

We designed Runway to make it easier for founders without an accounting and finance background to stay on top off their cash flow. In a few steps, you can create a financial model and observe how future spending decisions will impact your business.

After signing up and adding your start date and starting cash balance you are taken to Runway’s main page. To help you start your model we have added a list of common startup expense categories and expenses. You can modify this list to match your specific startup.

Simple expense entry

Runway uses a simple expense entry system that allows you to capture relevant data in a few clicks.

Enter the name of the expense, amount, start date, and frequency, and Runway will automatically populate monthly expenses over time. As you enter your expenses, the chart at the top of the page will reflect how each expense impacts your monthly burn rate and the expected life of the company.

Follow these steps for expense entry:

  1. Expense name — Use easy to understand names that describe where the money is going. If you can’t tell what the expense is by glancing at it, you should try a simpler name.
  2. Amount — How big is the expense. This number can be a one time, monthly or yearly figure. Even if you don’t know the exact amount enter your best estimate.
  3. Expense start date — Adding an employees currently on the payroll? Use today’s date. Planning to get a new office in Q1? Enter 1/1/2018.
  4. Expense frequency — Select how often you expect this expense to happen. Note that the option you select is directly related to the Amount you entered in #2. For example: If you entered the yearly salary for the employee in #2 you must now select “Repeat Yearly Paid Monthly” to properly capture how that expense impacts your monthly cash burn.
  5. Monthly growth. — For expenses that are expected to grow over time you can enter the forecasted growth rate and Runway will automatically adjust the number with the selected frequency. For example, If your rent contract calls for a 3% increase every year, enter 3% on this cell and the increase will be automatically calculated.

What expenses should I track?

One of the most common questions founders have when building a model is what specific expenses they should track and how to make sure they are not missing something important. In anticipation of this question, we pre-populated Runway with a comprehensive list of common startup expenses. Scroll through our suggested expenses and activate the ones relevant to your business by clicking on the check box.

Don’t see a category or expense relevant to your business? Click on the Add Item/Category buttons to create your own.

How about Income?

If the goal of every startup is to generate revenue and grow into a successful business, you need to model income as well as expenses.

To model income, click on the tab at the top of the data entry section and enter investments and revenue is the same way you added expenses.

As you add sources of income, you will notice the positive effect on cash flow on the tracking chart. If your income exceeds expenses in a given month, the bar on the chart will turn yellow. If expenses exceed income, the bar will remain blue.

It is important to note forecasting revenue is one of the most difficult modeling exercises for a startup. Early stage companies in search of product market fit might not know who their customers will be, let alone what it will take to close a sale. Consequently we caution against building long runway scenarios based on aggressive growth without strong evidence of customer demand and proven product market fit.

From data to insights

Once you have your basic data setup, you can unleash the power of Runway by modeling various expense and income scenarios to see how your decisions impact cash flow over time.

Here are some common levers founders like to pull::

  • Change the start date of an expense
  • Click on/off the checkbox for any expense
  • Enter option A or B for a specific expense and use the checkbox to swap between the two

By tracking how these changes impact the Runway and Cash Out dates on the chart, you will get a good idea on which expenses are the most relevant to your business.

As your play around with your model, you might want to compare between a couple of different scenarios that provide alternative trajectories for your business. To compare scenarios create a Copy of your current view and modify it to reflect the changes you need. Runway auto saves all the changes to your model and allows you to navigate between your scenarios by using the pull down menu.

Optimizing your model

By combining simple expense entry with the flexibility of quick modeling, Runway empowers you to quickly optimize your cash flow planning to your specific needs.

  • Need a team of 5 developers to build your product? Learn how much cash you will need to raise to pay for the team.
  • Need to make sure your cash last until Q2 of next year? Adjust your hiring plan to make sure you make it to the desired date.
  • Running out of cash before you expected? Accelerate your fundraising efforts to keep the team fully staffed.

For example — The following two charts illustrate the runway impact of two modeling scenarios.

1. Paced Growth

2. High Burn

Under the High Burn scenario management is spending heavily in the early months of the company to get the product to market at an early date. The higher burn rate reduces the company runway to 13 months requiring an additional round of capital before product sales start delivering positive cash flow.

The Paced Growth scenario modifies spend to fit the available cash and extend the life of the company until sales revenue grows to meet the needs of the business.

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