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Cash reserves: how much your business should have on hand

We all know it’s a good idea to have personal savings, but have you considered how much your business needs in cash reserves, and how you should go about meeting this goal?

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cash reserves

Cash reserves: not just for big businesses

Have you ever thought about how the song lyric “Cash rules everything around me” (C.R.E.A.M.) is relevant to the liquidity in your business? You’re probably wondering why I’m referring to a Wu-Tang Clan song in regards to a common business issue, but I believe it has some merit.

In a business’s daily operations, unexpected expenses and opportunities arise that require a quick response. And if you don’t have enough tangible funding on hand to meet these costs, your operations could come to a halt because you can’t afford to fix an emergency mishap, or you may lose out on an additional source of capital because you don’t have enough to travel to meet a new investor. Saying that cash rules everything may be a little extreme, but it does heavily factor into your viability as a business.

How much should you have in your cash reserves?

As a business owner, you should always have a contingency fund. It’s hard to speculate what could happen in the future, but it’s best to have money on hand for when the impossible happens, like if you have to hire a new person should one of your executives decide to leave or if you have a PR mishap that requires damage control. You can handle these things in a better manner if you have an emergency fund already set in place rather than scrambling for money at the last minute. You should try to save 5-10 percent of what these issues would cost and set it aside as an emergency contingency in addition to your regular cash reserve.

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Destiny Bennett is a journalist who has earned double communications' degrees in Journalism and Public Relations, as well as a certification in Business from The University of Texas at Austin. She has written stories for AustinWoman Magazine as well as various University of Texas publications and enjoys the art of telling a story. Her interests include finance, technology, social media...and watching HGTV religiously.


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