How much cash reserve should a business keep?

2 min read

3–6 monthsOf fixed costs

Lumpy = moreAdjust for income

Buffer + lineBest combination

How to size it

Add up your essential monthly fixed costs — wages, rent, loan repayments, core suppliers — and aim to hold three to six months' worth. Steady, predictable income (subscriptions, contracts) needs less; seasonal or project income needs more, because the gaps between receipts are wider. Use the seasonal cash-buffer calculator if your income swings through the year.

Buffer versus facility

Holding cash is safe but idle — it earns little and could be funding growth. A smart middle ground is a moderate buffer plus a standby facility you can draw on for genuine surprises, so you are covered without over-hoarding. That keeps money working while protecting you against a shock. Forecast the buffer you actually need with a cash-flow forecast.

What it means for you

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See business loans or apply online.

Frequently asked questions

Is it possible to hold too much cash?

Yes. Idle cash earns little and could be funding growth, paying down debt or improving margins. Beyond a sensible buffer, a standby facility gives the same protection without tying up capital.

Does a cash reserve replace the need for a facility?

Not quite. A reserve covers known, gradual gaps; a facility covers sudden, larger ones without draining your buffer to zero. Most resilient businesses keep both — a cushion and a line they rarely need.