A cash reserve is money set aside for the costs the business still has to meet when payments arrive late, work slows or an unexpected bill lands. The right amount depends on your regular commitments, how predictable your income is and how seasonal the work can be.

Set a target that fits your business

Start with the costs that would continue if new work paused: wages, rent, insurance, vehicle or equipment finance, utilities and essential suppliers. Compare those commitments with the lowest-cash periods in your recent records. Use that picture to choose a target that reflects your business, rather than relying on a universal number of months.

Keep the reserve separate and visible

Use a clearly identified account or ledger so the reserve is not mistaken for money available for everyday spending. Keep tax, GST and employee-related amounts accounted for separately; they are not the same as an operating buffer. Decide who can approve using the reserve and what situations qualify.

Build it in manageable steps

When the business has spare cash, transfer an agreed amount into the reserve. A small regular transfer may be easier to maintain than waiting for one large surplus. Revisit the amount after taking on staff, equipment finance or other ongoing commitments, and after a change in the business’s seasonal pattern.

Know when to use and replenish it

Use the reserve for the shortfalls it was designed to cover, then update the forecast and make a replenishment plan. If the reserve is repeatedly needed for ordinary bills, review payment timing, pricing, costs and the forecast; the buffer may be covering a problem that needs a separate fix.

A cash-flow forecast helps you spot when the reserve may be needed. Use our monthly forecast and spreadsheet, and read the practical cash-flow guide for managing receipts and costs. For a clear picture of your business records, talk to About Business Bookkeeping.