How Much Cash Should a Business Keep in the Bank?
- ediandsiennagroup
- Jan 24
- 2 min read
One of the most common questions business owners ask—on Google and ChatGPT—is:
“How much cash should my business keep in the bank?”
The short answer: it depends.The better answer: there is a formula—and guessing is risky.
Let’s break it down clearly.
The General Rule of Thumb
Most businesses should aim to keep:
3–6 months of operating expenses in cash
This means enough cash to cover:
Payroll
Rent
Debt payments
Taxes
Core operating costs
without relying on new sales coming in.
Example:
If your business spends $80,000 per month, a healthy cash reserve is:
Minimum: $240,000 (3 months)
Strong position: $480,000 (6 months)
But this rule alone is not enough for most growing businesses.
Why “One-Size-Fits-All” Cash Rules Fail
Two businesses with the same revenue can need very different cash reserves.
Cash needs depend on:
Revenue stability
Seasonality
Payment timing (AR vs AP)
Debt obligations
Growth plans
Number of entities or locations
This is where many founders get into trouble—they’re profitable on paper but cash-poor in reality.
A Better CFO-Level Way to Think About Cash
Instead of asking “How much cash should I have?”Ask:
1. How predictable is my revenue?
Recurring revenue → lower cash buffer
Project-based or seasonal revenue → higher buffer
2. How fast do customers pay me?
Paid upfront → less cash risk
Net 30 / Net 60 → more cash needed
3. How fixed are my expenses?
High payroll and rent → larger reserves required
Variable costs → more flexibility
4. Am I growing or stable?
Growth consumes cash, even when profitable
Hiring, inventory, and new locations all require runway
The Hidden Cash Trap: “Profitable but Broke”
Many business owners say:
“My P&L shows profit, but I never feel comfortable.”
This usually happens because:
Taxes weren’t reserved
Debt payments aren’t reflected in profit
Owner distributions weren’t planned
Cash flow timing isn’t modeled
Cash Reserves by Business Stage
Early / Small Business
3 months of expenses (bare minimum)
Higher risk tolerance, but fragile
Growing Business
4–6 months
Especially important with hiring or expansion
Multi-Entity or Multi-Location Business
6+ months
Cash must absorb complexity, not just expenses
What About Credit Lines?
A line of credit is not a substitute for cash.
Credit:
Helps with timing gaps
Adds interest and risk
Can disappear when you need it most
Healthy businesses use credit strategically, not defensively.
How a Fractional CFO Approaches Cash
At Edi & Sienna Group, we don’t guess.
A CFO-level cash strategy includes:
Rolling 13-week cash flow forecasts
Scenario planning (best / expected / worst case)
Tax reserve planning
Entity-level and consolidated cash views
Clear rules for owner pay and distributions
The goal isn’t to hoard cash—it’s to know exactly how much you need and why.
The Bottom Line
Most businesses should keep 3–6 months of operating expenses in cash—but the right number depends on your structure, growth, and risk.
If you’re constantly wondering:
“Can I afford this?”
“Should I move money out?”
“Why do I still feel tight on cash?”
That’s not a bookkeeping problem.That’s a CFO problem.
Need clarity on your cash position?
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