How Much Cash Runway Do You Need to Avoid a Going-Concern Disclosure?

The answer most CFOs carry around, "twelve months of cash", is wrong by two to three months, and the miss is always in the unfavorable direction. I have watched that arithmetic error surface for the first time in an audit committee meeting eleven days before a 10-K deadline. Here is the actual math, and how to run it before your auditor runs it for you. The free Cash Runway & Going Concern tool computes the whole thing, horizon, obligations, coverage, from your close calendar and forecast.

What runway does ASC 205-40 actually test?

The standard tests whether it is probable you cannot meet obligations as they come due within one year after the date the financial statements are issued: ASC 205-40-50-4. Issued. Not the balance sheet date.

So the runway requirement is: balance sheet date to filing date, plus twelve months. A December 31 company filing its 10-K on March 15 is asserting it can meet obligations through March 15 of the following year: 14.5 months measured from the cash balance everyone is staring at. A smaller reporting company that uses its full 90-day 10-K window is asserting nearly 15 months. Quarterly filings re-run the same test from each new issuance date under ASC 205-40-50-1, so the question never goes away; it just gets asked from a fresh start line every quarter.

Three consequences practitioners under-appreciate:

• Twelve months of cash at year-end is not enough for an annual filer. It leaves you two-plus months short of the horizon before the assessment even considers stress.
• A delayed filing extends the horizon. Every week the 10-K slips, the assessment window slides a week further into the future while the cash balance stays put. Filing delinquency and going-concern doubt feed each other.
• The interim assessments can be harder than the annual one. A company that cleared year-end with 15 months of runway has, mechanically, about 12 at Q1 issuance, right at the line, unless it raised or cut in between.

Does the test really come down to months of cash?

No, and this is the second-most-common modeling error. The test is obligations as they become due, not average burn coverage. A company with 18 months of operating burn coverage fails the test if a $40 million note matures in month nine with no refinancing in place that qualifies under ASC 205-40-50-6. Your runway model needs, month by month across the full horizon:

• operating cash flow at realistic (not board-plan) revenue,
• debt maturities and mandatory amortization inside the window, the classic killer, because a current-maturity reclass and a going-concern flag usually arrive together,
• covenant tests and their consequences, a probable Q3 leverage breach that permits acceleration pulls the entire accelerated balance into the "obligations due" column,
• milestone, earnout, and legal-settlement payments with contractual dates,
• the working-capital reflexivity of distress: vendors shortening terms and customers slowing payment precisely because your disclosures are deteriorating.

The cleanest framing: build the twelve-plus-months obligations schedule first, then ask whether cash plus probable sources covers every month's cumulative requirement. The first uncovered month is your real runway, the free Cash Runway & Going Concern tool flags it explicitly rather than letting it hide inside a quarterly average.

What buffer should you actually target?

From the filing seat: plan financings so that runway at each expected issuance date exceeds the horizon by at least one quarter. Not because the standard requires margin, it doesn't, but because the assessment is a forecast, and auditors discount forecasts. An engagement team looking at coverage of 12.4 months against a 12-month horizon will stress your revenue assumptions, haircut your uncommitted sources, and arrive somewhere below 12. Coverage of 15 months survives that conversation; coverage of 12.4 becomes a negotiation about ASC 205-40-50-13 language in the week you least want one.

For pre-revenue and development-stage companies, invert the logic: the assessment date effectively sets your financing calendar. If the 10-K issues March 15, the raise that keeps substantial doubt out of that 10-K must be closed or firmly committed before issuance, a term sheet in hand on March 10 does not clear the "probable of effective implementation" prong of ASC 205-40-50-6. Boards that understand this stop scheduling raises against cash-out dates and start scheduling them against filing dates.

What happens if the math lands short?

Then the question shifts from avoidance to execution, in this order: run the two-step assessment properly (conditions first, plans second); test each plan against 205-40-50-6's double-probable standard honestly; and if doubt survives, disclose under 205-40-50-13 with the required explicit substantial-doubt statement, not a softened paraphrase, which draws SEC comment letters and, worse, plaintiffs' attention when the paraphrase later collides with events. A clean, early, well-drafted going-concern disclosure is survivable; companies raise money and recover from them routinely. A late one that visibly lagged the company's own liquidity facts is how a disclosure problem becomes a litigation problem.

FAQ

Is 12 months of cash at year-end enough to avoid a going-concern disclosure?

Usually not, for an annual filer. ASC 205-40-50-4 measures one year from the issuance date, so a company filing its 10-K 75–90 days after year-end needs roughly 14–15 months of coverage measured from the balance sheet date.

Do debt maturities count against cash runway for going concern?

Yes, the test is meeting obligations as they become due. A maturity, mandatory amortization payment, or probable covenant acceleration inside the one-year window counts in full unless a qualifying refinancing plan under ASC 205-40-50-6 is probable.

Does the going-concern assessment happen only at year-end?

No. ASC 205-40-50-1 requires it every annual and interim period, each time measured one year forward from the new issuance date.

Can we avoid the disclosure by assuming our ATM covers the gap?

Generally no. ATM capacity is not a committed source; under ASC 205-40-50-6 a plan must be probable of effective implementation, and market-contingent equity sales at an unknowable price rarely qualify.