Posted by u/cabinet_shop_mike
How much cash should a small business keep in reserve?
Answered by Ask a Shop Owner ·
Bank account swings wildly. What is the right operating reserve for a shop under $2M revenue?
u/askashopowner Owner-operator advisor
Top answer
The floor is two months of fixed operating expenses in a separate account you do not touch. Rent, insurance, base payroll, loan payments, software, utilities. Not COGS, not commissions. Those move with revenue.
The goal is three months. Once you cross that, the next dollar goes to owner distributions, a Roth or SEP, or a real growth bet. Sitting on six months of cash feels safe but it is expensive: that money should be working.
Rebuild the reserve every January and every July. Two calendar checkpoints, no drift.
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