How to Build a Cash Reserve for Your Business

Calculate your business cash reserve target, choose accounts, and build systematic savings to protect operations.

1. Calculate your monthly operating expenses. Add up fixed costs: rent, payroll, insurance, loan payments, utilities, software subscriptions. Include variable costs that recur monthly: supplies, contractor payments, marketing spend. Exclude one-time purchases and capital expenditures. This is your monthly burn rate — the cash you need to keep doors open for 30 days.
2. Set your reserve target amount. Multiply monthly expenses by 3-6 months. Service businesses with predictable revenue target 3 months. Seasonal or project-based businesses need 6 months. High-growth companies burning cash should hold 6-12 months. If monthly expenses are $25,000, your target range is $75,000-$150,000.
3. Choose business savings accounts. Open a high-yield business savings account separate from checking. Business money market accounts typically pay 3.5-4.5% APY as of 2026. Avoid CDs — you need liquidity. Consider splitting reserves across 2-3 banks if your target exceeds FDIC limits ($250,000 per account).
4. Calculate your monthly funding amount. Divide your target by 12-24 months to determine monthly transfers. Alternatively, save 5-15% of monthly revenue depending on profit margins. Higher-margin businesses can save more aggressively. Set up automatic transfers from your operating account to reserve accounts.
5. Track and adjust quarterly. Review your burn rate every quarter — expenses change as you grow. Recalculate reserve targets when you add staff, sign new leases, or change business models. If reserves exceed 12 months of expenses, consider investing excess in short-term treasuries or expanding operations.