Most business owners only think about how much cash they keep in the bank when things get tight. By then, your options are limited, and the impact is bigger.
A clear cash buffer lets you grow without risking the business. Say you’re turning over $4.5M and aiming for $10M, then you’ll need enough cash to cover delays, slow months, or surprise tax bills — but not so much that it slows your growth.
Here’s the TL;DR: aim for 3 to 6 months of fixed operating expenses in accessible cash. If you’re in a higher-risk or fast-growing industry like construction, fitness, or cosmetic services, 4 to 9 months is safer.
Start With the Baseline: 3–6 Months of Fixed Operating Expenses
Base your cash buffer on fixed operating expenses. These are the costs that keep coming even if revenue drops. Think wages (including super), rent, minimum loan or lease repayments, insurance, core software, utilities, and vehicle finance.
If work slows down or sales dip, these costs still need to be paid.
Calculate how much to keep in the bank:
- Calculate your fixed operating expenses for a typical month
- Establish your range:
- The Floor: Multiply your monthly expenses by 3.
- The Ceiling: Multiply your monthly expenses by 6.
- Keep somewhere between the lower and higher amounts accessible. Don’t lock it away or tie it up in long-term investments.
Example: If your fixed operating expenses are $250k per month, your 3- to 6-month baseline is $750k to $1.5M.
When 4–9 Months Makes More Sense to Keep in the Bank
You’ll need a higher buffer when cash flow is volatile, or your growth plan puts more pressure on working capital.
This can happen when you have:
- Payroll-heavy operations
- Lumpy revenue and payment delays (e.g. seasonal demand)
- Higher exposure to rework/disputes or supplier price swings
- Rapid growth plans that require hiring or spending before revenue catches up
If you’re scaling fast and aiming to double your revenue quickly, aim for 4 to 9 months of fixed expenses. The bigger you get, the less room there is for cash flow hiccups.
Read more: Should You Reinvest Profits or Bank Them?
Split your buffer into two buckets
1) Emergency fund:
Set aside cash for potential shocks such as a major client delay, equipment failure, a dispute, or a sudden slowdown.
2) Trading liquidity:
Use this cash to cover timing gaps, like a progress payment lag, slow season, onboarding staff, or buying stock before a busy period.
Example: If your fixed operating expenses are $250k per month, your 4- to 9-month buffer for higher risk or growth is $1M to $2.25M.
Your Cash Buffer Should be Accessible
Keep your buffer somewhere you can reach quickly:
- At-call savings for accessibility
- Offset accounts are a great way to reduce interest while keeping funds available
Only use overdrafts or lines of credit as a backup. They’re useful, but not a substitute for real cash, as lenders can reduce facilities if trading conditions change.
Expert guidance for building your cash buffer
A clear cash buffer gives you room to grow without risking the business. Aim for 3 to 6 months of fixed operating expenses. If your business is more volatile or growing fast, use 4 to 9 months, split between safety cash and trading liquidity.
If you want to set this up around your real numbers, book a cash buffer review with an Agile CFO. We’ll stress-test your fixed costs, map your cash cycle, and build a buffer plan that supports growth, backed by practical Adelaide business advisory and CFO support.