How to work out your runway and build a cashflow forecast

Gross burn and net burn

Gross burn is the total cash the company spends in a month. It includes salaries, the tax and National Insurance paid on them, pension contributions, rent, software, marketing, supplier bills and payments to HMRC. Net burn is gross burn minus the cash customers pay in during the same month. A company that spends £60,000 and collects £20,000 in a month has a gross burn of £60,000 and a net burn of £40,000.

Work both out from bank transactions. The profit and loss account records sales when they are invoiced and costs when they are incurred, but runway depends on when money actually moves. Leave out money raised from shares and loans, which pays for the burn. Keep R&D tax credits and grants on separate lines, because they arrive as single payments that make one month look much better than normal trading.

Use the average of the last three months, because a single month can be distorted by an annual bill, a late customer payment or a VAT refund. Track gross burn alongside net burn, since gross burn is what the company would keep spending if sales stalled.

Runway from the cash you have now

The quick calculation is cash in the bank divided by average monthly net burn. £500,000 of cash and a net burn of £40,000 a month gives 12.5 months.

That figure assumes the coming months will look like the last three. A forecast replaces the assumption with what you already know is coming: hires that push costs up, VAT and corporation tax payments that fall in particular months, annual renewals, and customer contracts that start paying some time after they are signed. Use the quick figure as a weekly check against the bank balance, and base hiring and fundraising decisions on the month the forecast balance falls below the minimum you want to keep. Set that minimum in pounds, such as one month of gross burn, so that payroll can always be paid.

Building a monthly cashflow forecast

Forecast month by month for at least the next 12 months, and for 18 to 24 months when you are planning a raise, so the forecast covers the period the new money has to last. Start from the actual bank balance at the end of last month. Keep the assumptions, such as prices, customer numbers, payment terms, salaries and start dates, on a separate sheet, so that changing one updates the whole forecast. Our free cashflow template gives you the structure for the first 12 months, with money in, money out, a closing balance that carries into the next month and a runway row.

Revenue assumptions

Build revenue from what drives it: the number of customers, the price each pays, how many you add each month and how many leave. Then turn sales into cash. A customer on 30-day terms who is invoiced at the end of March pays at the end of April at the earliest. An annual contract paid upfront brings a year's cash in one month. Sales through a marketplace or payment processor arrive after fees and refunds are taken off. If the company is registered for VAT, receipts include VAT that is paid over to HMRC with the next return.

Link each revenue line to evidence you can show, such as signed contracts, a sales pipeline with expected dates or conversion rates from your own history. Where there is no history yet, say so on the assumptions sheet and use a lower figure in the downside case.

The hiring plan and the full cost of each hire

List each planned hire with a start month and salary, and forecast the full cost of employing them. For 2026/27, employer National Insurance is 15% of pay above £5,000 a year (rates and thresholds for employers). Under automatic enrolment the employer must pay at least 3% of qualifying earnings into a pension, and qualifying earnings for 2026/27 are earnings between £6,240 and £50,270 a year (automatic enrolment thresholds). For a salary of £60,000:

• salary: £60,000
• employer National Insurance: (£60,000 − £5,000) × 15% = £8,250
• minimum employer pension: (£50,270 − £6,240) × 3% = £1,320.90
• total: £69,570.90 a year, or about £5,798 a month

Add the costs that come with each hire, such as recruitment fees, a laptop and software licences, in the months they are paid. Employment Allowance can reduce the employer National Insurance bill by up to £10,500 a year, but a company with one director cannot claim it if that director is the only employee paid above the National Insurance threshold (Employment Allowance eligibility). Our cost of hiring calculator does these sums for any salary.

PAYE, which is the income tax and National Insurance deducted through payroll together with the employer's National Insurance, is paid to HMRC by the 22nd of the following tax month when you pay electronically (paying PAYE). In a new hire's first month, their net pay leaves the bank on payday and the PAYE on it follows the next month.

VAT quarters

A VAT-registered company usually files a return every three months, and the return and the payment are due one calendar month and seven days after the quarter ends. VAT for the quarter to 31 March is paid by 7 May (VAT return deadlines). Put each payment in the month it leaves the bank. On the cash accounting scheme, which is open to companies with VAT taxable turnover of £1.35 million or less, VAT on a sale is due only once the customer has paid (cash accounting scheme).

A company with little revenue and VAT on its costs is owed money back on each return. Repayments are usually made within 30 days of HMRC receiving the return, and can take longer if HMRC checks it (VAT repayments). HMRC normally allows monthly returns for a business that is regularly owed repayments, which brings the money in sooner (HMRC VAT accounting manual).

Corporation tax

A company with taxable profits pays corporation tax 9 months and 1 day after the end of its accounting period, so a year ending on 31 March 2027 pays by 1 January 2028 (paying corporation tax). Companies with profits above £1.5 million a year normally pay in quarterly instalments instead, starting before the year ends (paying in instalments). A loss-making year has no corporation tax to pay. Put any tax bill in the month it is due.

R&D tax credits

An R&D tax relief claim is made in the company tax return for the year, so the cash cannot arrive until the year has ended and the accounts and return are finished. The company must send HMRC an additional information form about the claim before or on the day it files the return (additional information form). A company claiming for the first time, or with no claim in the previous three years, must also notify HMRC within six months after the end of the period the claim covers, or the claim is invalid (claim notification).

HMRC aims to process 85% of claims within 40 days of receiving them, where processing can mean paying the claim, asking for more information, refusing it or starting a compliance check (HMRC's approach to R&D reliefs). Put the expected credit about two months after the date you plan to file, on its own line, and test a scenario in which it arrives later.

Running scenarios

Keep a base case built on the assumptions you think most likely. Then build a downside case by changing the few assumptions that move cash most: when new contracts start paying, how quickly customers pay, when hires start and when the R&D credit arrives. An upside case shows how much sooner you could hire if sales run ahead of plan.

For each case, note the month the balance falls below your minimum and the decision you would take before then, such as delaying a hire or starting a raise sooner. Time the fundraise against the downside case, so that a slower year does not leave the company raising with too little cash.

How investors read a forecast

An investor reading your forecast is checking whether the assumptions are believable, whether the numbers follow from them and whether the round gets the company to a point where it can raise again or no longer needs to. Set the forecast out so each of those can be checked:

• put every assumption on one sheet with its source, whether a contract, the pipeline, past conversion rates or a stated estimate
• start from the actual bank balance and show the last 6 to 12 months of actual figures next to the forecast
• show each hire with a start date and the full cost, including employer National Insurance and pension
• show VAT, PAYE, corporation tax and R&D credits in the months the cash moves
• show what the round pays for, month by month, and the milestone it is meant to reach
• include the downside case and the month cash falls below your minimum in each case
• make sure the figures for past months agree with your management accounts

When to start raising

Work back from the month your downside case falls below your minimum balance, and allow for the time the raise itself takes. The British Business Bank says the whole angel investment process can take up to six months (British Business Bank on equity finance). Add the time needed beforehand to bring the accounts, forecast and investor materials up to date, and a margin for a round that closes late.

Size the round from the same forecast. It needs to cover the net burn until the next milestone, the time the following raise will take and your minimum balance. As a reference point, the British Business Bank's Small Business Equity Tracker 2026 found that the median time between funding rounds for seed-stage companies was 14.4 months in 2025, up from 12.4 months in 2024 (Small Business Equity Tracker 2026).

An example forecast for a software company

This example is illustrative. A UK software company has £540,000 in the bank on 30 September 2026 after a seed round. It is registered for VAT on the cash accounting scheme, with quarters ending in March, June, September and December, and its year ends on 31 March. It is loss-making, so it has no corporation tax to pay.

From July to September 2026 the bank shows £184,800 paid out, including a £1,800 VAT payment, and £54,000 received from customers.

• gross burn: £184,800 ÷ 3 = £61,600 a month
• net burn: £61,600 − (£54,000 ÷ 3) = £61,600 − £18,000 = £43,600 a month
• quick runway: £540,000 ÷ £43,600 = 12.4 months, which points to October 2027

The forecast adds what the founders already know:

• running costs stay at £61,000 a month, including £2,400 of VAT paid to suppliers
• two engineers start on 1 January 2027 on £60,000 each, costing £5,798 a month each and £11,596 together, as worked out above
• a £12,000 annual insurance renewal is paid in November 2026, with no VAT to reclaim because insurance is exempt from VAT (VAT Notice 701/36)
• customer receipts, including VAT, are £18,000 a month until December, £21,000 a month from January as two new contracts start paying, and £24,000 a month from April
• each VAT payment is one-sixth of the quarter's receipts, which is the VAT inside them, less £7,200 of VAT on costs, giving £1,800 in November and February, £3,300 in May (£63,000 ÷ 6 − £7,200) and £4,800 in August (£72,000 ÷ 6 − £7,200)
• an R&D tax credit of £45,000 for the year to 31 March 2027 is expected in September 2027, after the return is filed in July

Month-end balances then run as follows:

• October to December 2026: £540,000 − £43,000 − £56,800 (including the insurance and VAT) − £43,000 = £397,200
• January to March 2027: £397,200 − £51,596 − £53,396 (including VAT) − £51,596 = £240,612
• April to June 2027: £240,612 − £48,596 − £51,896 (including VAT) − £48,596 = £91,524
• July 2027: £91,524 − £48,596 = £42,928
• August 2027: £42,928 − £53,396 (including VAT) = −£10,468

The cash runs out in August 2027, about two months earlier than the quick calculation suggested and a month before the R&D credit is expected. The hires add £11,596 a month, the new contracts add only £6,000 a month of receipts by April, including VAT, and the VAT payments grow as receipts grow. In a downside case where each rise in receipts comes three months later, the balance at 30 June 2027 is £75,024 instead of £91,524.

The founders set a minimum balance of £75,000, about one month of gross burn once the engineers start. In the base case the balance falls below that during July 2027. Allowing up to six months for the raise and a month to prepare, they need to start preparing in December 2026 and approach investors in January 2027. The forecast also shows the effect of a later hire. Starting one engineer in July 2027 instead of January keeps 6 × £5,798 = £34,788 more in the bank by the end of June. The balance then stays above £75,000 until August, the R&D credit arrives in September while there is still cash, and the money lasts until October 2027.

Keeping the forecast current

Update the forecast every month once the books are closed. Replace the month just gone with actual figures, write down the three largest differences from the forecast and why they happened, and roll the forecast on by a month so it always looks at least 12 months ahead. When cash is tight, add a 13-week forecast of expected receipts and payments by week, which shows when a payroll date falls before a large customer payment arrives. Business Pulse does this work with you. It gives you an annual budget, a rolling 12-month cashflow forecast and management accounts, kept in Buzz OS and talked through at a regular meeting, from £249 a month + VAT on a quarterly cycle or from £499 a month + VAT on a monthly cycle, with set-up from £750 + VAT.