Why This Matters

Cash reserves help a business handle unexpected expenses, slower sales periods, delayed customer payments, equipment repairs, or sudden opportunities.

Without adequate reserves, even a profitable business may be forced to rely on credit cards, loans, or owner contributions to cover normal expenses.

Common Mistakes

• Keeping no emergency reserve

• Treating all available cash as spendable

• Building reserves without knowing monthly operating costs

• Ignoring seasonal slowdowns

• Using tax savings as an emergency fund

• Holding excessive cash without a plan for it

Harvest’s Recommendation

Start by calculating your average monthly essential expenses. This may include payroll, rent, utilities, insurance, software, debt payments, and other costs required to keep the business operating.

Then establish a reserve target based on the reliability of your revenue.

A business with recurring monthly income may need a smaller cushion than one with seasonal, unpredictable, or project-based revenue.

Keep tax savings separate from your operating reserve so the same money is not counted twice.

Good to Know

The appropriate cash reserve may change as the business grows. Hiring employees, taking on debt, moving into a larger location, or relying on a small number of customers may increase the amount of cash you should keep available.

When It’s Time to Get Help

Consider speaking with a business advisor if:

• You regularly worry about making payroll

• Customers take a long time to pay

• Your business has large seasonal swings

• You are preparing for a major purchase or expansion

• You are unsure how much cash is truly available

• Your reserve is sitting in the operating account and keeps getting spent