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Business Finance

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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View your company’s cash reserve as you would your personal savings. Aim to have at least three to six months of your company’s expenses liquid, and perhaps more if you’re foreseeing heavy future costs. This coupled with your emergency 5-10 percent contingency fund for unexpected costs should suffice should a serious issue arise. It’s best to try to have this amount on hand as quickly as possible, but be realistic in how much you can put away each month after expenses are paid.

How to get started with cash reserves

You can begin with setting a goal of six months to a year, but it’s okay if it takes a while longer, and if you experience a period of lean months, then you may have to cut back a bit, but begin to sock away cash more aggressively once things stabilize. Having this liquidity in your business will help during times of hardship, for example, if you can’t make payroll one month or need to repair a water leak at the office.

And by getting into the habit of having a sufficient amount of resources on hand, YOU determine what projects your company can take on or how quickly you can fix a repair rather than having it solely dictated by the amount of cash you have.

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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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