Every family business owner we work with eventually asks some version of the same question: how much should we actually have sitting in the bank? It’s a fair question, and the honest answer is that most businesses don’t have anywhere near enough, not because they’re careless, but because nobody ever sat down and worked out a real number.

A workable starting point: one to three months of fixed costs. Fixed costs are the ones that don’t care whether business is quiet, rent, loan repayments, insurance, subscriptions, any wages you’re committed to regardless of workload. If you added those up and could cover them for a month without a single dollar of new income coming in, that’s your floor. Three months is more comfortable, and genuinely changes how a slow patch feels, from a crisis to an inconvenience.

Where the money actually comes from. The realistic way to build this isn’t a lump sum decision, it’s a habit. Set aside a percentage of every payment that clears, five to ten percent is a common starting point, into an account you don’t touch for day-to-day spending. It sounds small, but it compounds faster than people expect once it’s automatic instead of something you have to remember to do.

Keep it genuinely separate. A reserve that’s sitting in the same account as your everyday cash flow isn’t really a reserve, it’s just a number you’re mentally reserving, which tends to get spent the first time something comes up. A different account, ideally one that isn’t one tap away in your usual banking app, makes a real difference to whether it actually stays there.

It’s there for genuine gaps, not for every dip. The purpose of a reserve is to cover the things that are predictable in general but not predictable in timing, a slow season, an invoice that’s taking longer than usual to land, an unexpected repair. It’s not meant to absorb every fluctuation in the business, that’s what your regular cash flow should be doing. If you’re dipping into it every month, that’s usually a sign the underlying cash flow needs attention, not that the reserve is too small.

For businesses with genuine seasonality, plan around it specifically. If you know certain months are reliably quieter, and a lot of trade and family businesses do, build the reserve target around actually getting through that stretch, not just a generic three-month rule. The number that matters is the one that gets you through your quietest realistic month, not an average one.

None of this needs to happen overnight. A reserve built slowly and kept genuinely untouched is worth far more than one that’s raided every time something unexpected comes up.

If you want help working out what the right number actually looks like for your business, get in touch and we’ll work through it with you.