How Much Cash Should I Keep in My Business?
As your business starts making money, eventually you'll face a nice problem:
How much cash should I actually keep in my business?
Should you keep three months of expenses? Six months? $25,000? $100,000?
I've struggled with this question myself at Hill Media. Early on, I kept too little cash. Then, after learning some lessons the hard way, I probably swung too far in the other direction.
Today, I don't have one magical cash target.
Instead, I want enough to operate comfortably, cover taxes, handle emergencies, and pursue worthwhile opportunities.
After that, I want my business profits doing what I ultimately created the business to do:
Helping me own more of my time and build wealth for my family.
So instead of asking how big your business bank account should be, I think there's a better question:
What jobs does your business cash need to perform?
Why the 3–6 Month Rule Isn't Enough
A common recommendation is to keep three to six months of business expenses in cash.
I actually think that's a pretty reasonable starting point for a business emergency fund.
But your emergency fund is only one job your business cash needs to perform.
You also need money to pay your normal expenses. You may have cash earmarked for taxes. You might be saving for a new contractor, equipment, software, or another investment in your business.
And your ideal emergency fund can vary dramatically depending on your situation.
A solopreneur with ten reliable clients, low monthly expenses, and multiple income streams probably doesn't need the same cash cushion as someone whose largest client generates half their revenue.
That's why I prefer to give every dollar in my business a job.
For me, those jobs fall into five categories:
- Operating cash
- Tax reserves
- Business emergency fund
- Opportunity and reinvestment cash
- Excess cash
Once you separate your cash this way, figuring out how much your business actually needs becomes a lot easier.
1. Operating Cash: Keep the Business Running
The first job of business cash is the obvious one: pay the bills.
Know what it typically costs to operate your business each month, including things like:
- Payroll
- Contractors
- Software and subscriptions
- Insurance
- Advertising
- Professional services
- Other recurring expenses
Then consider any larger expenses you know are coming over the next few months.
At Hill Media, I keep most of my operating cash in my Chase business checking account. I use Monarch Money to give those dollars specific jobs within my business budget, including recurring expenses and upcoming one-time costs.
That system works well for me because I don't need a separate bank account for every expense or savings goal. I can look at the money sitting in checking and know that even though it's technically available, much of it is already spoken for.
The goal isn't to keep a huge operating balance.
It's to have enough that running your business feels comfortable and predictable.
I don't want to wonder whether I can make payroll or pay a reliable contractor because a client payment arrived later than expected.
For me, that's one of the first ways cash creates business freedom.
2. Tax Reserves: Don't Spend Money That's Already Spoken For
The second job of my business cash is covering taxes.
How you handle this will depend on your business structure and how you pay yourself.
Hill Media is taxed as an S corporation, so I receive money from the business in two primary ways: W-2 salary and owner distributions.
For my salary, I use Gusto to run payroll. Gusto calculates and withholds the appropriate payroll taxes and helps handle those tax payments for me. That's one reason I've appreciated using a payroll service as my business has grown.
Owner distributions are different. Taxes aren't automatically withheld when I transfer that money to myself, so I need to plan ahead for the taxes I'll eventually owe.
That's where my tax reserves come in.
I keep money earmarked for those future tax payments separate from my normal operating cash. That helps prevent me from looking at a healthy business bank balance and assuming all of it is available to spend or distribute.
I'm not a CPA, so I'm not suggesting that you structure your business or pay yourself the same way I do.
The larger lesson is much simpler:
If part of your business cash is earmarked for taxes, that money already has a job. Don't count it as available cash.
3. Business Emergency Fund: Give Yourself Time to Adjust
Keeping three to six months of business operating expenses in cash is a reasonable starting point for an emergency fund.
By operating expenses, I mean what you'd need to keep the business running if revenue suddenly dropped: payroll, essential contractors, software, insurance, professional services, and other necessary expenses.
I wouldn't include future investments, additional emergency savings, or owner distributions. And tax reserves already have their own job.
I've learned the value of this cash firsthand.
For years, I had a reliable, high-paying client that represented a meaningful portion of my revenue. Eventually, that client slowly reduced the amount of work we were doing together.
Thankfully, I had a healthy business emergency fund.
Instead of panicking and trying to replace that revenue immediately, my cash reserves gave me time to pivot and realign my business efforts.
I'm actually thinking about this again today. One client currently represents more of my revenue than I'd like, so I'm working to diversify now while things are going well.
The best time to prepare for losing a major source of revenue is before you lose it.
A healthy reserve also gives me flexibility during a family or health emergency, an unexpected expense, or a lower-revenue month. I work with reliable contractors who help me own more of my time, and I don't want one slow month to force me into letting good people go.
Three to six months is only a starting point. Your reserve should reflect your revenue stability, customer concentration, fixed expenses, dependence on your own ability to work, and personal comfort with risk.
I've gone from having too little emergency savings to wondering if I've become too conservative.
Now I'm looking for the balance.
The better I get at anticipating potential emergencies and planning for them, the fewer true emergencies my business seems to have.
4. Opportunity Cash: Invest in Profit and Freedom
Not every dollar above your emergency fund needs to leave the business.
I also like having some cash available for opportunities that can improve Hill Media.
That might mean hiring a freelance content creator, working with a website designer, paying an editor or thumbnail designer, trying a new AI tool, or investing in software that helps me better manage the business.
When considering these investments, I'm usually asking two questions:
Could this help my business become more profitable?
And just as importantly:
Could this help me own more of my time?
The best investments sometimes accomplish both.
For example, paying an editor or freelance content creator costs me money today, but it can increase how much content Hill Media produces without requiring me to personally do all of the work.
That's valuable to me because I'm not trying to build the biggest business possible at the expense of everything else.
I want a profitable business that also gives me time for my health, my family, my relationships, and the other things I care about.
That's why I intentionally keep some cash available for worthwhile opportunities instead of automatically distributing every dollar once my emergency fund is full.
5. Excess Cash: When Does the Money Need a New Job?
Eventually, you may reach a point where your operating expenses are covered, taxes are accounted for, your emergency fund is healthy, and you've set aside money for upcoming opportunities.
And there's still cash left over.
This is where I've become more thoughtful with Hill Media.
After spending years building up my cash reserves, I've sometimes wondered whether I've become too conservative. There's security in seeing a large balance in your business accounts, but eventually I have to ask:
What is this additional dollar doing for me by staying in the business?
If I don't have a good answer, that money probably needs a new job.
For me, that often means taking an owner distribution and moving the money into our family finances. From there, we can use it to invest, pursue family goals, have some fun together, or accelerate our financial freedom.
That's ultimately why I want Hill Media to be profitable.
I don't want to build a business that endlessly accumulates cash while my family's long-term goals wait on the sidelines.
The business exists to help me own more of my time and build wealth for my family.
Once the business has enough cash to do its job, I want the excess profits helping us do ours.
A Simple Way to Determine How Much Business Cash You Need
So how do you put all five jobs together?
Instead of starting with an arbitrary bank balance, I'd work from the bottom up:
- Operating Cash
- Tax Reserves
- Business Emergency Fund
- Near-Term Opportunities
Add those four together = Your Approximate Business Cash Need
For example, imagine a solopreneur decides they need:
- $10,000 to comfortably operate the business
- $12,000 reserved for upcoming taxes
- $25,000 for their business emergency fund
- $8,000 for investments they expect to make over the next year
That would put their approximate business cash need at $55,000.
I wouldn't obsess about maintaining exactly $55,000 every day. Business cash flow doesn't work that way.
Think of it as a range.
If your cash falls materially below that range, you may want to prioritize rebuilding it.
If your cash climbs materially above it, that's excess cash, which brings us back to the most important question:
Does this additional money have a job inside my business?
If the answer is yes, give it that job.
If the answer is no, it may be time to move those profits out of the business and put them to work elsewhere.
Give Every Dollar in Your Business a Job
I don't think there's one perfect amount of cash every solopreneur should keep in their business.
There are too many variables.
Instead, figure out how much you need to comfortably operate your business, prepare for taxes, weather emergencies, and pursue worthwhile opportunities.
Then pay attention to what happens when your cash grows beyond that amount.
For me, that's where the question changes from:
“How much cash should I keep in my business?”
to:
“What job should this next dollar have?”
Sometimes the answer will be keeping it in the business.
Other times, it might be taking an owner distribution and using that money to have fun with my family, invest for our future, or move us closer to financial freedom.
The goal isn't the biggest business bank balance.
It's having enough cash to run a resilient business that helps you build the life you actually want.