Working out a sensible buffer for your specific business
A slow month arrives. Then a slower one.
And the question that follows is the one every business owner eventually asks: how much cash should I actually be keeping aside for this?
There's no single dollar figure that fits every business — but there is a sensible way to work it out for yours.
The short answer
A common starting benchmark is enough cash to cover three to six months of essential operating expenses — rent, wages, loan repayments, insurance and other costs that don't stop just because sales slow down. Where your business sits in that range depends on how predictable your income is and how quickly you could cut costs if things got tight.
Why a range, not a number
| Your business profile | Where you likely sit |
|---|---|
| Stable, contracted or subscription income | Closer to 3 months — income is predictable, so less buffer is needed |
| Seasonal or project-based income | Closer to 6 months, or built around your specific slow season |
| Few large customers, concentrated risk | Higher than 6 months — losing one client could mean losing a large share of revenue at once |
| Significant fixed costs (leases, loan repayments) | Higher — fixed costs don't shrink when income does |
What actually counts as “essential” operating expenses
Rent or lease payments
Wages and superannuation for employees you'd need to retain
Loan and finance repayments
Insurance and other fixed contractual commitments
Core utilities and subscriptions the business genuinely can't operate without
Discretionary spending — marketing, non-essential subscriptions, optional contractor work — isn't part of this calculation. The reserve is meant to cover what keeps the doors open, not everything the business currently spends.
A simple worked example
A business has $18,000 a month in essential fixed costs. Using a middle-of-the-range four-month buffer, that's a reserve target of $72,000.
That figure isn't meant to sit untouched forever — it's meant to be there specifically for the months where income genuinely falls short, and rebuilt again once things recover.
Building the reserve without starving the business
Set it aside deliberately, not accidentally. A reserve that's just “whatever happens to be left in the account” tends to get spent. A separate savings account earmarked specifically for this purpose is far more durable.
Build it gradually. A fixed percentage of revenue each month, even a small one, compounds into a real buffer over a year or two.
Treat strong months as reserve-building months. In line with general cash-flow guidance, putting aside a portion of surplus cash in good months is what funds the leaner ones — rather than only reacting once they arrive.
Is more reserve always better?
Not necessarily. Cash sitting idle in a low-interest account isn't doing anything for the business either. Once you're comfortably within your target range, additional surplus cash may be better used paying down expensive debt, investing in growth, or being placed somewhere it can at least earn interest — while still being accessible if needed.
A quick self-check
Do I know my essential monthly operating costs, separate from discretionary spending?
Based on how predictable my income is, does 3, 4, 5 or 6 months feel like the right target?
Is my reserve sitting in a separate account, or mixed in with everyday cash?
Have I been treating good months as an opportunity to build the reserve, or just spending as it comes in?
When should you get professional help?
you're not sure what your genuine essential monthly cost base actually is;
your income is highly seasonal or concentrated in a few clients and you want a tailored target, not a generic rule;
you're deciding whether to build reserve further or redirect surplus cash toward debt or growth; or
you want a savings plan that builds the reserve without straining day-to-day operations.
Continue learning
→ What Is a Cash-Flow Forecast — and How Do I Build One?
→ My Business Is Making a Profit — So Why Is There No Money in the Bank?
→ How Can I Improve My Business Cash Flow Without Simply Cutting Costs?
SKC Accounting | Knowledge Centre | Knowledge Guide 016
Last reviewed: August 2026
General information only. This guide does not take into account your individual circumstances and is not a substitute for professional accounting, taxation, legal or financial advice.