Cash Reserves
Money set aside for emergencies or unexpected expenses.
Cash reserves are funds a business maintains for unexpected expenses, revenue downturns, or strategic opportunities. Financial advisors typically recommend 3–6 months of operating expenses in reserves. Reserves can be held in high-yield savings accounts or money market accounts for easy access while earning some return.
Example
A consulting firm with $25,000 in monthly expenses maintains $100,000 in a high-yield savings account as a four-month cash reserve for unexpected client losses or slow periods.
Why It Matters for Your Business
Cash reserves are the difference between weathering a downturn and going out of business—they buy you time to adapt when revenue drops unexpectedly.
Practical Tips
- •Build reserves gradually by setting aside a fixed percentage of monthly revenue.
- •Keep reserves in a separate account so you're not tempted to use them for routine expenses.
Related Terms
More Cash-flow Terms
Burn Rate
The rate at which a company spends cash monthly.
Cash Flow
The movement of money in and out of a business.
Cash Flow Forecast
A projection of expected cash inflows and outflows.
Cash Flow Statement
A financial statement showing cash movements from operations, investing, and financing.
Free Cash Flow
Cash from operations minus capital expenditures.
Related Financial Guides & Resources
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