Cash runway

Editorial approval scope: The team checked current source fidelity, scope boundaries, dates, arithmetic, reader usefulness, practical workflow, and general-information limitations.

Start with usable cash and net burn

A practical point-in-time formula is:

cash runway in months = cash available for operations ÷ average monthly net cash burn

Define cash available for operations as cash the practice may actually use for forecast operating needs. Reconcile bank balances, then subtract restricted funds, client or payer money held for another purpose, payroll and tax amounts already committed, outstanding checks, deposits that cannot be drawn, and other unavailable balances. Add a committed credit facility only when the reporting policy intentionally treats undrawn borrowing as liquidity, and show it separately.

Define net cash burn as operating cash payments minus operating cash receipts during a loss period. State whether the calculation includes owner distributions, debt service, equipment purchases, taxes, acquisitions, or one-time launch costs. Treat transfers between company accounts once. A consistent definition makes month-to-month comparisons possible.

If recurring cash receipts equal or exceed recurring cash payments, the simple burn formula has a zero or negative denominator and runway is not a meaningful finite number. Report “not currently burning cash,” then use a forecast to test whether upcoming hiring, payer delay, debt, tax, or capital spending creates a future shortfall.

Runway differs from profit and working capital

Profit uses the practice's accounting method and can include revenue before cash arrives. Cash runway follows actual and forecast cash timing. A profitable month can still strain liquidity when claims remain unpaid while payroll, rent, and vendors come due.

Working capital is current assets minus current liabilities. It includes receivables and other current items that are not immediately spendable cash. A practice may have positive working capital and short runway if receivables age or current liabilities come due first.

The SBA finance guide distinguishes cash and accrual timing, recommends tracking available cash, receivables, payables, payroll, and bank reconciliation, and describes a balance sheet as a basis for cash-flow projection. Those records support the inputs; the runway ratio is an owner-defined planning layer.

A monthly cash forecast is more useful than one ratio

Build at least a weekly near-term view and a monthly longer-term view. For each period, begin with available cash, add expected cash receipts, subtract cash payments, and calculate ending cash. Keep cash dates separate from service dates, claim dates, and booked revenue.

ABA practices should model:

• payroll dates, employer taxes, benefits, and contractor payments
• rent, insurance, technology, debt service, and other fixed commitments
• service volume, cancellations, authorization gaps, and staffing changes
• claim submission lag, front-end rejection, denial, appeal, recoupment, and refund timing
• payer and patient receipts based on observed cohorts rather than billed charges
• equipment, deposits, hiring, credentialing, and new-site outflows

The FDIC and SBA Money Smart program treats cash-flow management as a core small-business skill. Its cash-flow participant guide uses projected receipts and payments and emphasizes that assumptions are estimates to be revised.

Reconcile claims to cash without merging the states

A submitted claim, accepted claim, adjudicated claim, remittance, and deposit are different events. Forecast receipts from mature historical payment patterns by payer, product, service, location, and current workflow when volume permits. Keep new or changing cohorts separate.

CMS remittance guidance explains that Medicare remittance advice reports adjudication and adjustment information, while payment may arrive by electronic funds transfer or check. Use the remittance to explain the payer's result and bank reconciliation to verify that cash arrived. A promised or remitted amount should not inflate available cash before the practice's accounting policy recognizes it.

A fictional runway calculation

A fictional ABA practice has $225,000 across operating accounts. Its policy excludes a $25,000 restricted reserve and $20,000 already committed to an executed facility project:

$225,000 − $25,000 − $20,000 = $180,000 usable operating cash

Over the last three completed months, consistently defined operating cash burn was $36,000, $48,000, and $42,000. Average monthly burn is:

($36,000 + $48,000 + $42,000) ÷ 3 = $42,000

Simple historical runway is:

$180,000 ÷ $42,000 = 4.29 months

The team also models a downside forecast with monthly shortfalls of $50,000, $47,000, $42,000, $32,000, $25,000, and $12,000. Cash remaining after four months is $9,000, and cumulative burn exceeds usable cash during month five. Report that as “cash crosses below zero in month five,” unless a more detailed daily forecast supports a precise date.

Neither result is a promise. The historical ratio assumes recent burn continues; the downside path contains explicit future assumptions. Present both with the cash snapshot date, included accounts, forecast version, data owner, and reconciliation status.

Set decisions before the threshold arrives

Choose warning and action thresholds tied to the practice's payment cycle, payroll commitments, lender covenants, legal duties, and time needed to change course. A trigger might require a hiring review, collection escalation, expense approval, financing decision, or board update. Clinical leaders should assess continuity and safety effects before financial changes alter caseloads, staffing, supervision, or service transitions.

Refresh the model on a fixed cadence and after material changes. Compare forecast with actual cash, explain variance, update receipt curves and payment dates, and preserve prior versions. Report cash runway alongside aged receivables, claim holds, denial and collection measures, current liabilities, staffing capacity, service access, and quality indicators. One ratio cannot identify the cause or the right response.