How much cash should I keep in reserve?
Short answer: A practical starting target is 2–3 months of fixed operating costs, held separately from your everyday account and your tax reserve.
Reserves are what stand between a quiet month and a stressful one. They're also what allow you to make good decisions instead of urgent ones.
There's no single right number, but there are clear principles for sizing the reserve to your business.
Start with your fixed monthly costs
Add up the costs that don't move much month-to-month: payroll, rent, core software, insurance, finance repayments.
Two to three multiples of that number is a sensible starting reserve - enough to absorb a slow quarter without changing how the business operates.
Adjust for your business shape
Seasonal businesses, project-based businesses and businesses with concentrated customers usually need closer to 3–6 months of cover.
Subscription businesses with steady recurring revenue can often operate comfortably on 1.5–2 months.
Keep the reserve visibly separate
If your reserve sits inside your everyday account, it will be spent. Holding it in a separate account - visibly distinct from operating cash and tax - is what makes it work.
It also makes your total balance easier to see at a glance.
Build it gradually, not heroically
Trying to fund a full reserve overnight usually fails. Setting an automatic rule that moves a small percentage of every incoming payment into reserves is far more reliable.
Most businesses reach a healthy reserve within 6–12 months once the system is set up.
- 2–3 months of fixed operating costs is a sensible starting target.
- Seasonal or concentrated businesses should aim for 3–6 months.
- Reserves must be held in a separate, visible account.
- Automating small transfers builds reserves faster than willpower.