Get Started with the Runway and Cash Budget Tool

An overview of the free Runway and Cash Budget Tool.

The free Runway and Cash Budget Tool is used to build a cost budget and forecast cash and runway. 1 It is intended to be a simple model with easy inputs for expenses, revenues, and external funding, so that you can get a handle on burn, cash and runway quickly and easily. It is the simplest of the base financial models used for creating financial forecasts, and is a good starting point for idea-stage, pre-seed, and even seed-stage founders, advisors, mentors, or consultants that need to create a cost budget and runway forecast with the simplest structure possible.

How it works

The model has a few core sheets:

As well as a few optional sheets:

Get Started

The Get Started sheet for the Runway tool is slimmer than the one for the Standard Model and all Standard Model variants, and it is possible to create a basic revenue forecast in minutes with only a couple of inputs on Get Started and Unit Economics.

On Get Started, the first section is for model settings:

  • The name of the company, used for the Disclaimer sheet
  • The currency symbol to use in the model
  • The date to use as the first month in the model. The model runs for 47 months, so this input defines the time period covered by the model
  • The date of the fiscal year end of the first year modeled. This allows you to set the fiscal years in the model, and thus the # of months in the first year forecasted in the model. The default setting uses a formula to return the year end (in December) from the first month in the forecast. Feel free to overwrite this to set a different fiscal year end, just overwrite the formula with a date.
  • The beginning cash balance, used for the Consolidated Financial Statements on Statements.

Growth is an optional - but valuable - section to use to create a basic unit growth forecast. The model by default will use this unit growth forecast * unit economics to create a forecast of revenues and cash.

  • Date to start growth and revenues. Date to start growth of revenues, used on Forecast sheet in Growth section
  • Users. Use the input to change the label, the number input refers to the # new in the first month, as defined above
  • Baseline growth rate in New Users. This assumes the growth rate in the first month after growth starts, as defined above
  • where the growth rate stays the same per month. This changes the growth rate over time: you can assume a growth rate that increases over time, stays the same, or decreases (most common).

The Seasonality inputs are optional, but allow you to assume a percentage deviation from the baseline to create regular seasonality impacts for each calendar month in the model.

The revenue recognition assumptions are optional, and only needed if you create manual revenue lines and have to assume schedules where billings do not equal revenues.

  • Use automatic revenue recognition? By default this is turned on (select “yes”), you can turn off (select “no”) to enter in your revenue recognition and billings schedules manually
  • Optional: Recognize pre-existing deferred revenues over N months. If select “yes” in the cell above, if applicable, and only if you feed billings into model and not revenues. do not use if you are calculating revenue recognition with the default revenue structure in the Standard Model or other themes (i.e. leave as “0”). If you have a business where you are taking upfront payments as revenues, they need to be recognized over the length of the period over which you are obligated to provide the services for which the payments cover. This assumption is used to calculate deferred revenues.

Accounts Receivable is prebuilt, and optional:

  • Use automatic cash collection calculations? By default this is turned on (select “yes”), you can turn off (select “no”) to enter in your cash collection schedule manually
  • Optional: Days Accounts Receivable, in days. If select “yes” in the assumption above, the model allows you to assume the Days Accounts Receivable so that you can collect the cash later than recognizing the revenenues, if applicable for your business. Any period assumed <= 30 days means it’s collected in same month as revenues.

Depreciation is optional, and only used if you enter any expenses as capital expenditures:

  • Depreciation, straight line for N months. The model assumes straight-line depreciation for all capital expenditures, all depreciated by the # of months in this input. If you need different depreciation schedules for different assets, it’s not difficult to build that in, create that and link into the expense section.

The Corporate Income Taxes and VAT are optional:

  • Corporate Income Taxes. Used for calculating corporate taxes, only if any net loss carry-forwards are extinguished
  • Schedule for paying Corporate Income Taxes. By default, this has options for paying monthly, quarterly, annually, assuming paid the month after end of quarter, year, or previous month.
  • VAT (Value-Added Taxes). Assumption for VAT collected, as % of revenues. Assumption for VAT deductions is directly on Forecast sheet
  • Schedule for paying VAT (Value-Added Taxes). By default, this has options for paying monthly, quarterly, annually, assuming paid the month after end of quarter, year, or previous month.

The cap table is optional, the assumptions below are used to calculate the cap table on the Forecast sheet.

  • Optional: # Shares, Issued and Outstanding, at founding. The number of shares issued and outstanding at founding, before any investment rounds. (Note: issued and outstanding is not the same as authorized, do not put authorized but unissued shares on the cap table). This is not that important if you do not know, it just sets the math for the share prices, but has no impact on ownership %s or valuations.
  • Optional: % of Shares owned by Founders (Employees, Common Shareholders, etc.) at the opening of the cap table on the model. You can enter in past round by using this to set opening ownership between founders (employees, common shareholders) and investors (typically preferred shareholders)
  • Optional: % of Company sold to Investors, per Funding Round. The model uses an assumption of the % of the company sold in each round to create the premoney valuations, based on the amount raised in each round. This can be edited on the Valuation sheet if you want to change it for different rounds, or if you want to set the premoney valuation directly.
  • Optional: Option Pool created, every funding round. The model uses this to expand the option pool for every funding round. This simplified version assumes all option pools are created in the postmoney. It also assumes the same pool increase for each round, in practice this likely declines, and you can manually adjust directly on the Cap Table.

The Model Checks section does not have any inputs, but performs a couple basic internal model checks to make sure the calculations are correct. All checks should say “yes” if calculations are working correctly.

  • Does the Balance Sheet balance? Check to make sure assets = liabilities + shareholder’s equity
  • Does the Cash Flow balance? The cash flow is done in two places, on Forecast sheet and statement of cash flows on Statements sheet. This check is to make sure they are equivalent.
  • Do Deferred Revenues stay positive? This check helps to make sure that the revenues and billings are being properly recorded
  • Does Net Property, Plant and Equipment stay greater than zero? This check helps make sure that depreciation schedule is correct, and not over-depreciating capital expenditures

Unit Economics

The Unit Economics sheet provides a place to analyze fundamental unit economics by calculating margins, breakeven, and LTV (lifetime value, or customer lifetime value) based on inputs of recurring and transaction (one-time) revenues and cost of sales, churn rates, customer lifetime, and more. It is also used to create the prebuilt revenue forecast. The Unit Economics sheet is detailed at Unit Economics, and the video below details how to use it to create a revenue forecast.

The Unit Economics sheet is exactly the same in the Starter, Standard, and all Standard Model variants. The only difference is that in the Starter, Standard, and Standard Model variants the Unit Economics sheet is a stand-alone and must be populated by the user based on their inputs elsewhere in the model, for the Runway and Cash Tool it is prebuilt to drive a revenue forecast.

Forecast

The Forecast sheet is the core of the model, containing the inputs for the revenues and costs, and creating a 47 month forecast, summed into quarters and years.

  • The model is a 47 month forecast, that starts with the date set for the first month set on the Get Started sheet. This means if you input July 2019 into the Get Started input, your forecast will start in July 2020, and run for 47 months from there. The calendar year is still used as the year-end, so that 2019 forecast would be a 6 month forecast. If you want to add on more months to create a full three year forecast (plus six months for 2019), then follow the instructions for how to extend the timescale on the models.
  • The model uses the standard colors and formatting to denote inputs and calculations.
  • Growth. The growth forecast is created by the assumptions on Get Started, and also offers a line for manual input, so that you can input your growth projection in any way you want. The manual input is valuable for businesses that do not have every-month growth curves (e.g. enterprise sales) or want to build other methods for forecasting growth.
  • Revenues. The prebuilt revenue revenue lines are generated from the Unit Economics curves, which come from the Unit Economics sheet. These create per-unit forecasts of billings, revenues, cost of sales, and acquisition and retention costs, which are applied on a per-cohort basis to show how each cohort of new users, customers, clients or susbcribers builds into a total forecast. This automatically builds in any per-unit growth rates or churn rates assumed on Unit Economics into the forecast. The manual revenues section is completely open for you to simply type in forecasted revenues, or to create your own logic and calculations to forecast revenues, and then link them into thees revenues lines. You can create more lines for different revenue streams by adding in rows, just be sure to insert new rows above the last input row in that section. 2
  • Expenses. The expenses lines have a couple example titles, but you can set the names for the expenses however you want. In Column D you can set a category for the expense, and you can rename those categories in the section directly under the Expenses line. You can add as many rows as you wish to add in more expenses, just make sure the Total Operating Expenses line sums the rows you added.
  • Categories. The categories can be edited to create your own expense categories to communicate the key aspects of the business. These categories are used to categorize expenses into selling, general and administrative (SG&A), cost of sales (COGS), and other categories for correct accounting treatment on the consolidated financial statements.
  • Cash. The cash section takes the beginning cash balance and looks at the change in cash during the period to calculate the ending cash balance. Note that the model can be used for either cash or accrual accounting methods, noting that if you want to use accrual methods you might need to edit this cash section depending on the full accounting impact of the revenues and costs you enter.
  • Funding. On this sheet you can also input external funding - equity, convertible debt or SAFEs, loans, grants - to model the impact of external funding on cash balances.

Key Reports

After you’ve input your costs and revenues (which, frankly, is optional) on the Forecast sheet, the Key Reports sheet will automatically create three charts to help you understand and communicate your costs and runway.

The core reporting features of the model consist of the reports on the Key Reports sheet:

  • Burn and Runway: a chart that shows net cash burn and cash balance over time, combining revenues, expenses, and any external funding.
  • Summary of Operating Expenses: A summary of the cost budget, using the categories you create on the Forecast tab.
  • Sources & Uses: A summary pie chart that shows how the first fundraise - external financing - you put in the model (optional) is used to pay for the summary operating expenses over a period of time.
  • Traction & Ownership: A chart that plots traction metrics - revenues, or other metrics you can define yourself - against ownership and cash on hand. The goal of this is to show how business traction compares to cash, and how ownership position changes with external fundraising.

Statements

The Statements sheet contains a standard three statement approach to consolidated financial statements - income statement, balance sheet, statement of cash flows - on a monthly, quarterly, and annual basis. Details at Explaining Financial Statements →

Different from the Standard and Starter Models, many lines of the balance sheet on this tool are inputs, as the model does not calculate changes in those accounts by default. The corporate income taxes and VAT are prebuilt, but the other items are not prebuilt and open for creating your own logic.

Scenarios

See Scenarios →

Impact

See Impact →

What this tool does not do

Compared to the paid base financial models, this free tool offers the same core structure, but does not offer two main features:

  • Prebuilt detailed revenue forecasts. The default revenue model built into the Standard Financial Model contains extensive business logic to help you forecast your operations, revenues and costs. The Runway Tool provides a basic method using a simple growth rate in new acquisitions and unit economic-based growth and churn, and is also completely open, so you may build in any logic to forecast your revenues and expenses - growth rates, customers, users, employees, etc. - in any way you want.

The rest of the differences between the base financial models are detailed by the comparison grid and overview details here ›


  1. Runway means the number of months you have in terms of being able to cover the expenses of the company given current cash situation and expectations. 

  2. This may not be obvious, but if you are looking for revenue logic, you can also explore the Free Tools to see if one of the revenue methodologies there can help you forecast revenues. And of course, it’s easy to pull one of the free tools into this tool and link the revenues calculated in the other free tool into the Forecast sheet of the Runway and Cash budget. Questions, contact me → 

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