Diagnostic Tool
Liquidity Runway Estimator
This diagnostic calculates how long a business can continue operating under a revenue decline scenario before cash reserves are exhausted. It combines the fixed cost base, variable cost structure, and downside revenue assumption to produce an estimate of remaining operating runway in months.
In practice, liquidity risk appears when revenue falls faster than costs can be reduced. Fixed commitments continue regardless of order intake, while variable costs adjust with some lag. The cash position erodes steadily during this period, and the rate of erosion is determined by the gap between cash inflows and the irreducible cost base.
Understanding runway matters because it converts an abstract liquidity concern into a concrete time horizon. A business with three months of runway operates under fundamentally different decision constraints than one with twelve. Knowing the number enables management to respond with appropriate urgency and to distinguish between short-term pressure and structural insolvency risk.
Total cash and liquid reserves available to fund operations.
Fixed costs per month including salaries, rent, and contracted services.
Current revenue run rate before any decline scenario.
Gross profit percentage used to estimate variable cost contribution.
Expected revenue level under the downside scenario as a percentage of normal.
Cash collection lag behind invoicing that affects monthly cash inflow.
Undrawn overdraft or revolving credit available as a buffer.
Percentage of fixed costs that could be cut within 60 days of a downturn.
Fixed monthly loan or finance repayment obligations.
Many of the inputs requested by this diagnostic are metrics that disciplined operators typically monitor through internal management reporting. If a number requested here is not immediately available it often indicates that the current reporting structure does not isolate that metric clearly. Businesses operating with strong financial visibility normally track these figures regularly because they influence pricing decisions, supplier negotiations, operational planning, capital allocation, and risk management. Part of the work performed by MJB Strategic often involves helping companies design internal reporting structures that surface these metrics consistently so management can make better operational decisions.