In 2025, 23,938 UK companies went under, and almost four in five were creditors’ voluntary liquidations, the kind of closure a director starts when the money has run out. Very few of those failures happened overnight. The warning signs were there months earlier, sitting in the numbers, waiting for someone to read them.
The signal that matters most: your cash runway
Your cash runway is the number of months your business can keep paying its bills if income dried up or stayed flat. It is the single clearest gauge of financial health. The formula is simple: cash runway equals cash in the bank divided by your average monthly net cash burn. Net cash burn is the cash going out each month minus the cash coming in.
Here is a worked example. You hold £48,000 in the bank. Over the last three months, more left the account than came in, averaging £16,000 a month. £48,000 divided by £16,000 gives you three months of runway. Three months is not a comfortable cushion. It is a countdown.
What a shrinking runway is telling you
A falling runway means the gap between money in and money out is widening. That gap is the real warning, and profit can look fine while it happens. A business can report a profit on paper and still miss payroll, because profit is booked when you raise an invoice, not when the cash lands.
Watch for the cluster, not the single number. Creditor days rising, because you are stretching suppliers. Your own debtor days climbing, because customers pay slower: 62.6% of SME invoices were paid late last year. Margins slipping. A growing reliance on the overdraft or a fresh loan to cover ordinary costs. One of these is noise. Three of them together is a trend.
How to track it properly
- Pull two figures: your current bank balance, and the net cash movement for each of the last three months from your accounting software.
- Check it weekly when runway is under six months, monthly when it is healthy.
- Compare this month against the last three, not against last year. Direction matters more than any single reading.
- Track it alongside creditor days, debtor days, gross margin and your overdraft balance.
- Flag any month you delayed a payment to HMRC. A missed VAT or PAYE payment is one of the earliest and clearest distress signals there is.
What to do when the runway shortens
There are three common causes, and each needs a different response.
First, slow-paying customers. Your cash is trapped in the sales ledger. Chase the oldest invoices first, put your largest overdue accounts on stop, and ask for deposits on new work.
Second, margins that are too thin. You are busy, but the work barely pays. Reprice your three lowest-margin products or services, and drop or renegotiate anything that loses money on every sale.
Third, fixed costs too high for current revenue. List every recurring cost, cancel what you have not used in 90 days, and move the rest to a quarterly review.
Do not reach for more borrowing first. New debt buys time, but it does not fix the cause, and it raises the monthly outflow you are already fighting.
One thing to do this week
Open your bank account and your accounting software side by side. Write down today’s closing balance. Work out the net cash movement for each of the last three full months, money in minus money out, and take the average. Divide today’s balance by that average. The result is your runway in months. If it comes in under three, you have found your priority for the quarter.
Early warning signs rarely arrive one at a time, and reading them together is the hard part. FinanceMOT scores your business across Liquidity, Profitability, Efficiency and Solvency, and it is the Solvency pillar that surfaces this exact pattern: thinning cash cover, rising creditor days, and a widening gap between profit and cash. Your accountant shows you the numbers. FinanceMOT tells you which one is the early warning and what to do about it.
