Is the business generating positive cash flow this month — and how many months of expenses does the current cash balance cover?

Profit is an accrual-basis metric that recognises revenue when earned and expenses when incurred, regardless of when cash changes hands. Cash flow is a cash-basis metric that counts only cash actually received or paid during the period. A business can be profitable on paper while running out of cash if customers pay slowly, inventory is purchased in advance of sales, or large capital expenditures are made. Conversely, a business with a large upfront cash collection (such as subscription revenue paid annually) may appear cash-flow positive even in a period of reported accounting losses. This calculator measures only cash movement — not profitability.

Months of expense coverage is the ending cash balance divided by the monthly cash outflow rate. It shows how many months the business could sustain current spending if all inflows ceased immediately. A coverage ratio below 1.0 means the balance would be exhausted within the current month at current burn. A ratio of 2.0 means the business has two months of runway at current outflow levels. This metric is particularly important for businesses with seasonal revenue, long sales cycles, or variable client payment timing — it translates an abstract balance figure into a concrete operational horizon.

Yes — owner draws and distributions are cash that physically leaves the business, and including them produces the most accurate picture of total cash consumption. A business that appears cash-flow positive because owner compensation is excluded may in fact be consuming more cash than it generates when the owner draw is accounted for. For businesses structured as pass-through entities (sole proprietorships, partnerships, S-corporations), owner draws are often the largest single outflow and the most variable — they are the first place to look when diagnosing a negative cash flow period.