Imagine looking at your bank balance the week your payout lands. It is the most money you have ever had in one place. It feels like it could last for years. Then you start adding up the mortgage, the groceries, the car, the insurance and the cost of getting a business off the ground, and the number starts to feel a lot smaller.

The question that matters is simple: how long will my payout last? The answer is your runway. This guide shows you how to build a runway budget for your new business, step by step, so you know exactly how many months you have to make it work.

What a runway budget is, and why it matters

Your runway is the number of months your money can cover your household and your business before the business pays its own way. It turns a big, vague lump sum into a clear timeline.

A runway budget does three useful things:

  • It tells you how long you can test your idea without putting your home or family under pressure.
  • It shows you how much you can safely spend on setting up.
  • It gives you a clear point to stop, change direction or find extra income, decided calmly in advance.

Step 1: Start with the money you actually have

Begin with the amount that arrived in your account after tax, not the figure in your redundancy letter. Genuine redundancy pay is tax-free up to a limit, with the rest taxed as an employment termination payment, so the two numbers can be quite different. The ATO’s redundancy payments page explains how this works.

Add any savings you are prepared to use. Leave out money you have already set aside for something else, like a child’s school fees or a planned repair. Write the total down. This is your starting balance.

Step 2: Work out your monthly household costs

This is the part people often underestimate. List every regular cost your household has, and convert each to a monthly figure.

  • Mortgage or rent
  • Electricity, gas, water and internet
  • Groceries and household items
  • Car loan, fuel, registration and servicing
  • Health, home, car and life insurance
  • Phone, streaming and other subscriptions
  • School, childcare and activities
  • Credit card and personal loan repayments
  • A realistic amount for “everything else”

The free Moneysmart budget planner walks you through this and adds it up for you. Look at three months of bank statements to check your estimates. Most of us spend more than we think.

If your partner earns an income, include it here. It may cover part of the household costs and stretch your runway considerably.

Step 3: Estimate your business costs

Now split your business costs into two groups.

One-off set-up costs

  • Registrations and licences for your industry
  • Tools, equipment or a vehicle
  • A simple website, logo and business cards
  • Initial insurance premiums
  • Professional advice from an accountant or lawyer

Monthly running costs

  • Insurance. business.gov.au lists the main types, including public liability, professional indemnity and income protection.
  • Software, phone and internet for the business
  • Marketing and advertising
  • Fuel, materials and travel
  • Bookkeeping and accounting
  • Money set aside for tax and super

Do not forget the last one. As a sole trader, nobody withholds tax for you. The ATO suggests setting money aside for your tax bill and considering voluntary PAYG instalments when you are new to business. Moneysmart also notes that sole traders do not have to pay themselves super, so you need to plan for it yourself.

Step 4: Do the runway calculation

Here is the simple version of the formula:

  1. Take your starting balance.
  2. Subtract your one-off set-up costs.
  3. Subtract an emergency buffer you will not touch (for example, three months of household costs).
  4. Divide what is left by your total monthly costs (household plus business running costs).

The answer is your runway in months, assuming the business earns nothing at all.

An example with made-up round numbers: say your starting balance is $120,000. Set-up costs are $10,000. You keep a $21,000 emergency buffer. That leaves $89,000. If your household costs are $7,000 a month and business running costs are $1,000 a month, your total is $8,000 a month. $89,000 divided by $8,000 is about 11 months of runway before any income.

Every dollar the business earns pushes that date further out. Every unplanned purchase pulls it closer.

Step 5: Set your checkpoints

A runway is only useful if you check it. Decide your checkpoints now, while you are calm.

  • Monthly: update your balance and runway. It takes ten minutes.
  • Halfway: is the business bringing in steady enquiries and some paying customers? If not, what will you change?
  • Six months left: decide whether to keep going full time, add part-time work, or step back.
  • Your stop point: the balance at which you will stop spending on the business, no matter what. Share it with your partner or someone you trust.

Ways to make your runway longer

If your runway looks shorter than you would like, you have options. None of them mean giving up.

  • Start leaner. Work from home, buy second-hand, and delay anything that is not essential to winning your first customers.
  • Choose a low-cost service business. Businesses built on your skills, like virtual assistant services or cleaning services, often need less to get going than a shop or a fit-out.
  • Add part-time or contract work. Even two days a week can extend your runway a long way.
  • Trim household costs for a set period. Pause subscriptions, review insurance, and talk to your lender early if repayments are a strain. Moneysmart’s guide to losing your job covers hardship options.
  • Check government support. Services Australia can tell you whether you are eligible for any payments. Waiting periods, such as the income maintenance period, can apply after a redundancy payout.
  • Get free help. The Financial Information Service is free, and the National Debt Helpline on 1800 007 007 can help if debts are a worry.

You can find more practical guides like this one in The Redundancy Pivot series.

This article is general information only, not financial, tax or legal advice. Check your own situation with the ATO or a licensed adviser.

Next step

Your runway tells you how long you have. Local research tells you how quickly customers are likely to come. Knowing both before you start is the best protection your payout can have.

Before you spend your payout, find out whether your idea will work where you live. Get free, localised research into your business idea from GrowOnline: your local competitors, what they charge, what their customers say and who lives in your area.