Why restricted cash matters to a first-time founder
Restricted cash may appear in the bank balance but cannot fund ordinary payroll, suppliers or growth. Treating it as available cash can overstate runway and create a sudden shortfall. Founders need to know who imposed the restriction, what the money may fund and when it becomes available.
Examples of restricted cash
A landlord requires a ₦20 million deposit held in a separate account for a five-year lease. The startup has ₦100 million across its bank accounts, but only ₦80 million is available for operations. Its cash forecast shows the deposit separately instead of counting the full balance as runway.
Common misunderstanding
Restricted cash is not merely money a founder would prefer not to spend. A legal agreement, regulation or other binding condition limits its use. A voluntary internal reserve can still be sensible, but it is usually designated cash rather than restricted cash for accounting purposes.
When to use it
Separate restricted amounts when reviewing runway, lender reports or financial statements. Keep the agreement that creates each restriction and track its release conditions. Ask an accountant how to classify the balance, because presentation may depend on the restriction’s purpose and expected duration.