Cash survival: stopping the leak

Imagine your phone is at 15% battery and you're far from home. If you ignore the warning, you might end up stranded with a dead phone. But if you check the number and switch to low-power mode, you can make it home.

A business crisis works the same way. The number in your bank account tells you how much time you have left before everything shuts down.

Here's the problem: most people don't want to look. Looking at a scary number feels worse than hoping for the best. But hope doesn't charge your phone. Only knowing the real number lets you make a plan.

The simple truth: A business dies when it runs out of cash. Not when sales drop. Not when customers complain. It dies when there's no money left to pay rent or salaries. So the first step in any crisis is knowing exactly how much cash you have — and how long it will last.

Here's something that surprises a lot of people: the number in your bank account isn't actually your money.

Some of that money belongs to the government. If you have employees, you collected tax from their paychecks. That money sits in your account, but it's not yours — you just haven't sent it to the tax office yet.

Some of that money belongs to customers. If someone paid you $10,000 upfront for a project you haven't finished, that's technically their money until you deliver. You can spend it, but now you owe them $10,000 worth of work. Think of it as a debt you pay with labor instead of cash.

Available cash is what remains after you subtract taxes owed. Customer prepayments stay in your balance, but you should mark them as owed work — work you must deliver that will cost you time and resources.

Quick example:

• Bank balance: $80,000
• Tax you owe: $15,000
• Available cash: $65,000
• Customer prepayments (owed work): $25,000

You have $65,000 to spend, but $25,000 of future work is already sold. That work will eat into your team's capacity while you're trying to survive. And if delivering that work costs money — materials, subcontractors, travel — subtract those costs from your available cash too. The $65,000 is only real if delivering the owed work is free.

Now that you know your real cash number, the next question is: how fast are you spending it?

Number 1: baseline runway (worst case)

This answers: If sales drop to zero tomorrow, how long until we're dead?

Take your available cash and divide by your monthly expenses (rent, salaries, software — everything).

Example: $65,000 ÷ $20,000/month = 3.25 months.

Now apply a 20% safety buffer for unexpected costs. Multiply by 0.8.

3.25 × 0.8 = 2.6 months of runway.

This is your absolute floor. If nothing changes and no money comes in, you have about 11 weeks before the business dies.

Number 2: status quo runway (current reality)

This answers: At my current sales level, am I surviving or slowly dying?

Take your monthly expenses and subtract your monthly sales. This is your net burn — how much cash you lose each month.

Example: You spend $20,000/month and earn $12,000/month in sales.

Net burn = $20,000 − $12,000 = $8,000/month gap.

Status quo runway = $65,000 ÷ $8,000 = about 8 months.

If net burn is positive (you spend more than you earn), you're default dead — you will run out of money unless something changes. If net burn is zero or negative (you earn as much or more than you spend), you're default alive — you can survive indefinitely at this pace.

Once you know these numbers, you have a choice: cut expenses or increase sales. In a crisis, cutting is usually faster. Let's look at what to cut.

Think of your business like a boat with a leak. Everything on that boat is either helping you row toward shore (keep it) or weighing you down (throw it overboard).

Things that bring in cash fast → keep these.

If a marketing campaign brings in paying customers within 2 weeks, that's an engine. It's worth spending money on because it makes more money back quickly. The key word is quickly — in a crisis, you can't wait 60 days for a payoff.

Things that don't bring in cash right now → cut these.

That new software subscription you've been meaning to learn? Gone. The ad campaign that builds brand awareness but won't generate sales for months? Pause it. If your available cash is $65,000 and your monthly burn is $20,000, cutting $2,000 per month extends your runway from 3.25 months to 3.6 months — 10 extra days to find a solution.

Things you can't cut → negotiate instead.

Rent, for example. You can't cancel your lease. But you can call your landlord and explain the situation. Many landlords would rather give you 2 months of reduced rent than lose a tenant entirely. Same goes for vendors and suppliers. More on this in Lesson 3.

After each cut, recalculate your burn rate and runway. Watch that number grow. That's how you know you're making progress.

This method works in most situations, but fails in specific contexts:

Runway is too short (any industry). If you calculate 7 days of survival, you don't have time to analyze and cut. Jump straight to Lesson 4 about legal protection. This is especially common in restaurants and retail, where daily cash flow is everything.

You cut what makes the product good (service businesses). A restaurant that fires its best chef. A consulting firm that lays off its star consultant. A software company that cuts customer support. These businesses need specific talent to deliver value. Cutting them saves money but destroys the product.

Slow-paying industries (B2B, construction, government contracts). If your customers pay in 60-90 days but your bills are due in 30, the math in this lesson understates your problem. You might look default alive on paper but still run out of cash before payments arrive. In these industries, focus on Lesson 3 (negotiating payment terms) before cutting.

Analysis paralysis. Some founders spend 3 weeks perfecting their spreadsheet while the business bleeds out. In a crisis, a rough number today beats an exact number next week. Get to 80% accuracy and move.