Shit happens. Your clients can go out of business or get a new vendor. Your best employees can leave. Your technology can get out of vogue.

None of these are catastrophic failures. They can be overcome with retraining, marketing, getting new clients. Each of these take time. (And money).

Thats why you need to have a rainy day fund. This will keep your business afloat when things change.

In general, 4 months of runway are enough for a consulting business. (That is 4 month of all corporate expenses, payroll, lease, electricity and everything else)

Two common answers are

• It depends
• 6 month into your monthly burn rate

Lets dig deeper.

4 months from starting is a reasonable time to assume that you are making a monthly profit. So you need to keep 4 months recurring plus the fixed expenses to start.

Fixed costs:

• Cost of incorporating a legal entity: A1
• Cost of hardware(Computers, printers) to start: A2
• 1 year of insurance for founders and employees: A3
• Deposit/Down payment for office rental: A4
• Miscellaneous one time costs (Buying a domain etc) A5

Recurring costs:

• (Lets assume two people) Salary B1/Month: 2 * 4 * B1
• Electricity, Janitorial, AC etc: 4 * B2
• Cost of web services used(Project management/CRM): 4 * B3
• Cost of servers: 4 * B4

Put these values in a spreadsheet and get the amount of money you should get before you start. In general between 5-9 months of recurring expenses are a fair estimate.