Set your runway and liquidity targets

Who this is for

Founder led lower-middle market companies with 5 to 50 million in annual revenue that want clear cash rules during growth.

The quick answer

Target three to six months of operating costs in cash and available credit. Hold more if demand is volatile or inventory heavy. Build a rolling thirteen week cash forecast and set alert levels for covenants and headroom. Review weekly with finance and monthly with leaders.

The method in seven steps

Define operating cost
Use an average of the last three months of cash operating cost that excludes non cash items.
Set your base target
Pick a point in the three to six month range based on volatility, inventory intensity, and seasonality. Add a small buffer for covenant headroom.
Build a thirteen week forecast
Start with opening cash. Add receipts by week from invoicing and collections. Subtract payroll, rent, payables, taxes, debt service, and capital items. Keep it simple and update weekly.
Map your credit
List facility limits, advance rates, and any blocked availability. Tie the forecast to expected borrowing base changes.
Add alert levels
Create yellow and red lines for covenant headroom and minimum cash. Write actions that trigger at each line.
Run the review rhythm
Weekly with finance. Monthly with leaders. Focus on variances and actions rather than re forecasting the whole model.
Link to decisions
Use the view to pace hiring, inventory buys, and marketing spend. Share a one page summary with leaders.

Example

A company at twenty one million set a four month target due to lumpy collections and inventory cycles. With a weekly view and clear alert lines they avoided a covenant squeeze during a slow quarter.

Pitfalls and fixes

Forecasts that need many tabs. Keep one tab and a notes section.
Ignoring the borrowing base. Tie receivables and inventory to availability.
Alert lines with no actions. Pre write actions by line.

Checklist

Operating cost baseline
Liquidity target with buffer
Thirteen week forecast live
Credit map and headroom view
Alert levels and actions
Weekly and monthly reviews