How much cash should my business keep in reserve?
How much cash you should keep back depends on how predictable revenue is, how quickly customers pay, the fixed monthly cost base and how easily the business could reduce spending or access funding.
There isn't one number that suits every business
How much cash you should keep back depends on how predictable revenue is, how quickly customers pay, the fixed monthly cost base and how easily the business could reduce spending or access funding.
Start with what you have to pay
Look at the cash needed to cover payroll, premises, finance commitments, tax and other unavoidable costs for a period where income was weaker than expected. That gives you a more useful target than a percentage of turnover.
Think about how predictable the business is
Businesses with recurring income and low fixed costs can often operate with a smaller buffer than businesses with seasonal sales, large payrolls, stock commitments or a small number of major customers.
Don't confuse the bank balance with spare cash
Cash sitting in the bank may already be needed for VAT, Corporation Tax, payroll or upcoming supplier payments. A reserve should be money available after known commitments, not simply the current bank balance.
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