The bank balance looks fine, so the month looks fine. Then a big client pays late, payroll is due on Friday, and you find out the balance was only fine because of timing.
In short: once a month, spend half an hour on three numbers. Runway: how many months your cash covers your fixed costs if sales stopped. Gross margin: how much of each sale you keep after the costs of making it. Payroll cover: how many payrolls the account that pays wages can handle. Write them in the same place every month, and act when one crosses a line you set in advance.
- Close the month
- Runway
- Gross margin
- Payroll cover
- Compare with last month
- One decision
This is a general management method, not financial or accounting advice. Your accountant may calculate margin differently for your books.
A worked example
Made-up but realistic: a small business with 3 employees.
- Cash: €90,000, of which €18,000 is in the account that pays wages. Money set aside for tax doesn't count.
- Fixed costs: €15,000 a month (€9,000 payroll, €6,000 rent, software, accountant).
- This month's sales: €35,000, with €10,500 of direct costs (materials, subcontractors).
| Calculation | This month | Example warning line | |
|---|---|---|---|
| Runway | €90,000 ÷ €15,000 | 6 months | under 3 months |
| Gross margin | (€35,000 − €10,500) ÷ €35,000 | 70% | down 5 points in 3 months |
| Payroll cover | €18,000 ÷ €9,000 | 2 months | under 1 month |
6 months
None of these is in trouble this month. The point is the trend: if runway goes from 6 to 5 to 4 months while sales look steady, something is eating cash, and you see it while there's still time to act.
The warning lines here are examples, not rules. Pick your own, write them down, and decide in advance what you'll do when one is crossed.
The steps
1. Close the month first
Record every payment, match it to the bank statement, and mark what's direct cost and what's fixed. A review on half-recorded numbers is worse than none (recordkeeping).
2. Runway
Cash, without the tax reserve, divided by fixed monthly costs. It answers: if sales stopped tomorrow, how long do we have?
3. Gross margin
Sales minus direct costs, divided by sales. If it falls, prices haven't kept up with costs, or a type of work isn't worth it (setting your rate).
4. Payroll cover
The balance in the account that pays wages, divided by one month's payroll. Below one, a single late client can make payday stressful.
5. Compare with last month and three months ago
One month is noise. Three months is a direction.
6. Make one decision
Chase an invoice, move money to the wages account, cut a subscription, raise a price. Write it down next to the numbers.
The traps
- Counting the tax reserve as cash. It's already spent, just not paid yet (separate accounts).
- Looking only at revenue. A record month with a falling margin can leave you with less.
- Changing the formula. Use the same calculation every month, or the trend means nothing.
- Reviewing without deciding. If nothing changes after the review, it was just reading.
Try it with your numbers
Take last month: cash without the tax reserve, fixed costs, sales, direct costs, the wages account balance and payroll. Three divisions give you the three numbers. Write them down with the date.
One thing to do today
Put a 30-minute appointment in your calendar for the first working week of every month, called "Review: runway, margin, payroll".
Where Volora fits
In Volora, each business account is its own wallet, so cash without the tax reserve is the sum of the right wallets, and a low-balance alert on the wages wallet warns you before payday. A Business project with separate categories for direct and fixed costs gives you the inputs, budgets with budget alerts show when a fixed cost creeps up, and Insights flags unusual spending. Volora doesn't calculate runway or margin for you; it gives you the numbers you divide.