Recession-proofing isn’t something you do when the downturn arrives. It’s the work you do now, while you still have options, writes True Tally Bookkeeping.
Tags: #bookkeeping tips #recession proof your business #cash buffer #cash reserve #run rate #cash runway
“Recession-proof” gets thrown around like something you can buy. It isn’t. It’s a set of habits that make a business harder to knock over. The time to build them is while things are still steady, not when the phone goes quiet. Heading into 2026, costs are up and demand is uneven, and a handful of moves matter more than the rest.
Before the moves, here are the numbers behind them. Most owners have heard these terms. Far fewer have worked them out for their own business.
The numbers you need to know (plain-English definitions)
Term | What it means | Why it matters |
|---|---|---|
Revenue run rate | Your current income projected over a full year, based on a recent period | Tells you what pace the business is running at right now |
Fixed costs | Costs you pay every month whether you see one client or a hundred: rent, salaries, software, insurance, loan repayments | These are what keep draining cash when revenue drops |
Variable costs | Costs that rise and fall with how much work you do: contractor splits, consumables, card fees | These shrink on their own when things slow down |
Gross burn rate | Total cash going out each month | The worst-case drain if revenue stopped completely |
Net burn rate | Cash going out minus cash coming in each month | The realistic drain in a slow patch |
Cash runway | How many months you could keep operating with the cash you have now | The best single predictor of surviving a lean patch |
Break-even point | The monthly revenue you need to cover all your costs | Shows exactly how far revenue can fall before you start losing money |
Cash buffer | Cash set aside on purpose to cover a set number of months of fixed costs | Buys you time to make calm decisions instead of panicked ones |
Run rate and runway sound alike but answer different questions. Run rate is about revenue: how fast are we earning? Runway is about cash: how long could we survive? You need both.
How to calculate your run rate
The basic formula:
Annual run rate = revenue for the period × number of those periods in a year
Monthly: October revenue × 12
Quarterly: quarter revenue × 4
The more reliable version:
Annual run rate = average monthly revenue over the last 3 months × 12
A single month can mislead you. One unusually busy month makes the business look healthier than it is, and one quiet month makes it look worse. A three-month average evens that out.
Watch for seasonality. If your business has predictable busy and quiet periods, compare against the same months last year, not just the last few months.
How to calculate your cash runway
Step 1: Work out your available cash.
Start with your bank balance, then take out money that isn’t really yours: PAYG withholding you owe the ATO, super you owe your team, GST collected (if you charge it), and any bills already due.
Available cash = bank balance − tax, super and bills already owed
Step 2: Add up your monthly fixed costs.
Only include costs you can’t switch off quickly.
Step 3: Calculate worst-case runway (gross burn).
Worst-case runway (months) = available cash ÷ monthly fixed costs
This assumes revenue drops to zero. It’s a stress test, not a forecast.
Step 4: Calculate realistic runway (net burn).
Net burn = fixed costs + variable costs − revenue
Realistic runway (months) = available cash ÷ net burn
If net burn comes out negative, you’re still making money even in your slow-patch scenario, so your runway is effectively unlimited. That’s where you want to be.
Step 5: Find your break-even point.
Break-even monthly revenue = fixed costs ÷ (1 − variable costs as a % of revenue)
Worked example: an allied health clinic
Take a four-practitioner OT and speech pathology clinic in regional Victoria. Two practitioners are salaried and two are contractors paid a share of what they bill.
Run rate
Month | Revenue |
|---|---|
August | $58,000 |
September | $64,000 |
October | $70,000 |
Run rate on October alone: $70,000 × 12 = $840,000
Run rate on the three-month average: ($58,000 + $64,000 + $70,000) ÷ 3 = $64,000 × 12 = $768,000
That’s a $72,000 difference. If the owner plans next year’s hiring around $840,000, they’re building on one good month.
Fixed costs (monthly)
Cost | Amount |
|---|---|
Rent | $5,500 |
Reception and admin wages (incl. super) | $9,500 |
Two salaried practitioners (incl. super) | $16,000 |
Practice management, telehealth and accounting software | $900 |
Insurance | $600 |
Equipment loan repayment | $1,200 |
Utilities and phone | $500 |
Total fixed costs | $34,200 |
Variable costs (contractor splits, consumables, card fees) run at about 25% of revenue.
Available cash
The bank shows $85,000, but $15,000 is PAYG withholding and super already owed. Most allied health services are GST-free, so there’s little GST to set aside here. Available cash = $70,000.
Worst-case runway: $70,000 ÷ $34,200 = about 2 months
Realistic runway (revenue drops 40%):
Revenue: $64,000 × 0.6 = $38,400
Variable costs: 25% of $38,400 = $9,600
Net burn: $34,200 + $9,600 − $38,400 = $5,400 a month
Runway: $70,000 ÷ $5,400 = about 13 months
Break-even: $34,200 ÷ 0.75 = $45,600 a month (a break-even run rate of about $547,000 a year)
What this tells the owner: revenue can fall about 29% from the current average before the clinic starts losing money. If it fell further, there’s a year of breathing room, but only two months if referrals dried up completely. Two months is too thin. A sensible goal is a buffer covering three to six months of fixed costs, built up a little each month.
A healthcare way to think about it
Run rate is like taking a pulse. You count beats for 15 seconds and multiply by four. It’s quick, standard and useful. But take it right after the patient has walked up three flights of stairs and you’ll get a misleading number. A single strong month is that post-stairs pulse. The three-month average is the resting heart rate, the figure you actually make decisions on.
Runway is like reading an oxygen cylinder. Any nurse can tell you how long a cylinder will last: volume remaining divided by flow rate. Your cash is the volume and your burn rate is the flow. Nobody waits for the gauge to hit red before ordering a spare. Your cash buffer is that spare cylinder.
Your monthly numbers are your obs chart. One reading rarely tells the whole story, but the trend does. A clinic that checks cash, runway, margin and debtors every month sees deterioration early, the same way regular obs catch a patient going downhill before it becomes an emergency.
The moves that make a business harder to knock over
Know your runway, then build a buffer. Profit is an opinion; cash is a fact. Once you’ve done the calculation above, fund your buffer on purpose, the same way you’d fund any other priority, rather than hoping one builds up. Even a fixed transfer each month into a separate account adds up.
Get paid faster. In a downturn, customers slow their payments, and their cash flow problem quietly becomes yours. Tighten your terms, invoice the moment the work is done, chase early and automatically, and take deposits wherever the job allows. In a clinic, that means taking payment at the time of the session, keeping a card on file, and lodging funding and insurer claims promptly rather than in a monthly batch. Shaving a week off how long you wait to be paid can do more for your position than landing another client.
Protect margin, not just revenue. The instinct in a slow year is to chase volume and discount to win it. That is how busy businesses go broke. Know your real costs, including the true loaded cost of your team, price for margin, and be willing to walk away from work that doesn’t cover it. For health practices, that includes enforcing a clear cancellation and no-show policy (within any funding scheme’s rules), because an empty appointment slot still costs you the practitioner’s wage and the rent. A smaller book of profitable work beats a full diary that loses money on every booking.
Cut the fat before you cut the muscle. If savings are needed, start with the set-and-forget costs: subscriptions you’ve outgrown, insurance you auto-renew without comparing, fees you’ve never renegotiated. Those come out long before you touch the people and the marketing that bring revenue in.
Reduce your dependence on any one thing. One client who is 40 per cent of revenue. One supplier. One lead channel. In healthcare, it’s often one funding stream or one referring GP. Concentration feels efficient when things are good and becomes dangerous the moment they’re not. Spread the risk while you still have the breathing room to do it calmly.
Keep your numbers close. You can’t steer what you can’t see. Up-to-date books, a simple rolling cash flow forecast, and a monthly look at the few numbers that matter (cash, run rate, runway, margin and debtors) turn nasty surprises into early decisions. Most businesses that fail in a downturn didn’t lack a plan. They lacked visibility until it was too late.
Quick answers
What’s the difference between run rate and runway?
Run rate projects your revenue over a year to show how fast you’re earning. Runway divides your available cash by your monthly burn to show how many months you could keep operating.
How many months of runway should a small business have?
A common target is a cash buffer covering three to six months of fixed costs. Businesses with lumpy or seasonal income, or a heavy reliance on one funding source, should aim for the higher end.
How often should I recalculate these numbers?
Monthly, once your books are reconciled. It takes about 15 minutes once the formulas are set up, and the trend over several months tells you more than any single figure.
The bottom line
None of this requires predicting the economy. It just requires building the business so it doesn’t depend on everything going right. The owners who do that work now are the ones who get to play offence in 2026 while their competitors are scrambling to catch up.
If you’d like help working out your own run rate, runway and break-even point, True Tally Bookkeeping can set it up from your books and walk you through it. Call 0468 159 950.