cashflow
Cash Reserve
Cash buffer kept separate from operating cash. The shock absorber for the business.
Definition
A cash reserve is a dedicated balance held against unexpected expenses, revenue dips, or strategic opportunities. The standard benchmark for service businesses: 3-6 months of operating expenses, kept in a separate account from operating cash so it can't be casually spent. The reserve is what lets you survive a major customer loss, a slow quarter, or an unexpected investment opportunity without scrambling for emergency credit.
In your business
- →Build to 3 months of operating expenses first, 6 months long-term
- →Keep it in a separate account - high-yield savings or money market - not commingled with operating cash
- →Don't dip in for non-emergencies - if you use it, replenish on a clear schedule