How much cash should you actually have in the bank?

It’s 11 p.m. You open your banking app and check the balance again. There’s enough for this month’s bills, probably. But what about payroll next month, the tax payment you know is coming, or the slow season that hasn’t started yet?

“Is there enough in the bank, not just for this month’s bills, but the ones you haven’t seen coming yet?” That’s a practical question, and it deserves a practical answer.

There is no magic universal number. A useful starting point is to build a cash target around your actual expenses, upcoming obligations, seasonal patterns, and the pay you need from the business. Here’s a way to find your number in one sitting.

Start with a range, not a rule

You may have heard that a business should keep three to six months of expenses in reserve. That can be a reasonable starting range. SCORE describes three to six months as a general reserve guideline, while noting that a business’s needs depend on its circumstances.

The range is a starting point, not a verdict on whether your business is doing well. A business with steady monthly contracts and reliable collections may need a different cushion than an ecommerce business with seasonal sales, a service business waiting on a few large clients, or a growing business that has to buy inventory before it gets paid.

The goal isn’t to hit someone else’s number. It’s to understand what your business needs to keep operating and meet its obligations.

Find your number in one sitting

Set aside 30 to 45 minutes. You’ll need your recent bank activity, a list of regular expenses, and a calendar. Use actual cash payments, not just the expenses that appear on a profit-and-loss report.

1. Write down essential monthly cash outflows

Start with the costs your business must cover to keep operating. Depending on your business, these may include:

• Payroll, employer payroll costs, and the pay you need to take home

• Rent, utilities, insurance, and essential software

• Inventory, supplies, or contractor payments

• Loan payments

• Tax payments and other amounts due to government agencies

Include costs even if the timing varies. If your business pays for inventory in bursts, or makes tax payments quarterly, note the timing too. The SBA’s cash-flow guidance explains why the gap between paying suppliers and collecting from customers can put pressure on cash.

2. Choose a starting number of months

Choose a buffer period that reflects how predictable your cash flow is. Three months may be a starting point for a business with steady collections and few major surprises. Consider a larger cushion if sales vary, customers pay slowly, a few clients make up a large share of revenue, or you have large fixed costs.

Seasonality matters. If your busiest sales period is followed by a slow stretch, you may need cash to cover expenses until sales pick up again. Choose a range that fits the pattern, not the average month alone.

3. Multiply

If your essential monthly cash outflows are $25,000, a three-month reserve would be $75,000. A six-month reserve would be $150,000.

Essential monthly cash outflows × chosen number of months = starting reserve target

This is your first estimate. It is not yet the whole picture.

4. Add the dates your expenses are due

Look at the next 12 months. Mark the dates for payroll, tax payments, debt payments, insurance renewals, inventory purchases, and any other large bills. Check that your target accounts for those obligations.

Be careful not to count the same cost twice. If a quarterly tax payment is already included in your monthly estimate, don’t add it again as a separate expense. If a one-time payment isn’t included, make sure your plan accounts for it.

5. Set aside cash that already has a job

Your bank balance may include money you’re holding for payroll taxes, sales tax, supplier invoices, or another near-term obligation. That money is in the account, but it is not available to spend twice.

Make a short list of amounts that are already committed. Then compare what remains with your reserve target. This gives you a more useful view of the cash you can actually rely on.

Adjust for your business

A simple monthly average can hide the months that cause the most stress. Look at how your cash moves through the year.

For an ecommerce business, you may need to pay for inventory, shipping, and advertising before customer payments settle. For a service business, you may complete work weeks before a client pays the invoice. In both cases, the issue isn’t only how much cash comes in. It’s when it comes in, and when bills are due.

If your revenue is seasonal, sketch out your expected income and major payments month by month. Ask: When is my lowest cash point likely to be? That low point can tell you more than the balance on a busy day.

Also include your own pay. If the business can cover payroll and suppliers but cannot reliably pay you, that’s an important part of the cash picture. Your personal needs don’t disappear just because the balance sheet looks healthy.

Keep the operating balance and the reserve visible

A reserve is easier to protect when you can see it. Some owners keep day-to-day spending cash separate from their reserve in another business account. The right setup depends on your banking arrangements and how you manage cash. The practical aim is simple: know what’s available for regular bills, what’s committed, and what you’re keeping as a cushion.

Review the numbers regularly. A cash target that made sense last year may need to change when you hire, take on a loan, expand inventory, or see a shift in sales.

What if you’re below your number?

First, make sure you know your actual position. Compare the current balance with committed payments and expected receipts. Then look ahead at least a few weeks: Which bills are due first? Which customers are expected to pay, and when? Are there costs you can reschedule without creating a bigger problem?

A cash shortfall is a reason to get specific, not a reason to rely on a guess. If the numbers feel unclear, a regular review with someone who understands your business can help you make decisions with more context.

At Tier 5, the monthly review meeting is the product: Thirty minutes a month with someone who has seen 30 years of businesses like yours. It’s time to review what changed, what’s coming due, and whether your cash target still fits. Learn more about our services or schedule a conversation.

Your number is yours

There’s no single cash balance that proves a small business is safe. There is a simple way to get closer to an answer: calculate essential outflows, choose a reserve period that matches your business, account for due dates and seasonality, and separate committed money from cash you can use.

That won’t make every month predictable. It can make the next decision clearer, and replace another late-night check of the bank balance with a number you understand.

Tier 5. The Co-Pilot you can trust. Start with a conversation.

This article provides general information only and is not financial or tax advice. Your cash needs depend on your business and circumstances. Consult an appropriate professional about your situation.