What is ‘Cash Runway’ and How Can You Extend It?
Just like a plane taking off, your startup needs a solid runway to launch and reach your business goals.
The term ‘cash runway' has been thrown around a lot these days, but what is it exactly? It is the given number of months that you can operate your startup at a loss before completely running out of funds—assuming you’re unable to raise more money for your business.
In leaner times like these when the economy has taken a downturn, determining and monitoring your cash runway can help put into context the urgency of the situation. Knowing your cash runway will allow you to gain valuable insight into the financial strategies you should consider implementing to cushion the blow of the sudden market slump. Here’s how to calculate it: Cash Runway = Cash Balance / Burn Rate.
How can you extend your startup runway?
We’ve all seen the enormous impact of the COVID-19 pandemic on the economy—hitting startups especially hard despite having the capabilities to relaunch compared to traditional business. In fact, according to the recent PwC survey, 62% of founders reported that they only have a cash runway of up to six months. Similarly, less than 20% of the startups have enough cash and capacity to sustain the business for more than 12 months.
As a countermeasure, there are now newly-launched government programs aimed towards helping businesses bounce back in the midst of the COVID-19 pandemic. With the ‘COVID-19 Assistance to Restart Enterprises (CARES) Program’, small businesses can now take out a low-interest loan. Under this program, micro enterprises with asset size of not more than Php 3,000,000 may borrow Php 10,000 up to Php 200,000, while small enterprises with asset size of not more than Php 15,000,000 may borrow high loans up to a maximum of Php 500,000. Similarly, the ‘Small Business Wage Subsidy Program’ provides wage subsidies of up to Php 8,000 per eligible employee for two months.
Although government programs and financial assistance are available, they're not always easily accessible to startups due to the difference in business structures. In response, QBO in partnership with Youth Business International (YBI) and supported by Google.org launched 'RESQUE: Startups vs. COVID-19 Competition'—a nationwide startup competition to help startup founders stay afloat during these uncertain times.
Butch Meily, President of QBO, discusses how the pandemic affected the local startup scene as well as how the RESQUE Competition can help startups power through the crisis with Michelle Ong of ANC. Check out the full interview here: https://bit.ly/RESQUE-ANC-Interview
Correction: It was stated in the interview that less than 12% of startups in the Philippines have enough cash to stay open and remain in operations over the next 12 months. It is in fact, 20% and not 12% as confirmed in the referenced PwC survey.