How Much Cash Should Your Business Have? Let's Keep It Simple.

If you've ever asked someone how much money you should have saved, there's a pretty good chance you've heard the same answer:

"Six months of expenses."

Great. Wonderful. Thanks for that.

Now, can somebody please explain how I'm supposed to save six months of expenses when I'm busy paying my bills, running my business, managing debt, and trying to keep everything moving?

That's the part of the conversation we tend to skip.

Because knowing how much money you should have is one thing. Figuring out how to actually get there? That's an entirely different conversation.

Let's have that conversation.

First, Is There Really a Magic Number?

Here's the answer nobody seems to want to give you.

Yes. And no.

Six months of expenses is a great goal. It's a number that can give you some breathing room if something unexpected happens.

Maybe you lose a major client. Maybe you can't work for a while. Maybe something happens in your personal life that forces you to step away from the business.

Whatever the situation, having cash available means you aren't immediately scrambling to figure out how to pay the bills.

But here's what I don't want you to do.

I don't want you to hear "six months of expenses," look at your bank account, and decide you're already failing.

You're not.

Building a cash reserve takes time. For some people, it takes years.

And that's perfectly fine.

The important thing isn't having all that money sitting in an account tomorrow.

It's knowing what you're working toward and taking steps to get there.

Step One: Figure Out What It Costs to Keep the Lights On

Before you can start saving, you need to know what you're saving for.

And no, I'm not talking about your ideal monthly budget with every expense, subscription, and nice-to-have included.

I'm talking about the bare minimum.

What does it cost to keep your business and your life functioning if your income suddenly stops?

Think about things like:

• Rent or mortgage payments

• Utilities

• Insurance

• Minimum debt payments

• Essential business operating expenses

• Other obligations that aren't going away just because revenue does

These are what I call your "keeping the lights on" expenses.

Once you've figured out that monthly number, multiply it by six.

Let's say your essential expenses are $2,000 a month.

That means your six-month cash reserve goal is $12,000.

There it is. Your magic number.

Now, before you panic about where you're going to find $12,000, there's something else we need to talk about.

Step Two: Stop Looking at the Mountain. Start Looking at the Next Step.

Let's say you've calculated your number.

You need $12,000.

And right now, you have absolutely nothing extra to put toward it.

So what do you do?

You start small.

I want you to look at how you're spending money right now.

Not how you think you're spending money. How you're actually spending it.

Go through your expenses and look for something you no longer need, aren't using, or could reasonably reduce.

Maybe it's a software subscription nobody uses anymore.

Maybe it's a service that made sense a year ago but isn't doing much for your business today.

And before anybody gets nervous, I'm not suggesting you cut expenses that are essential to keeping your business running.

That's not the point.

The point is to find opportunities that won't hurt your ability to operate.

Let's say you find $50 a month.

Take that $50 and put it into a separate savings account.

That's it.

You've started building your reserve.

Next month, look for another opportunity.

Maybe you find another expense to reduce. Maybe you've adjusted your pricing and can put a little more money aside.

The idea is to build the habit.

Because that $12,000 goal can feel overwhelming when you're staring at it from zero.

But $50?

That's a place to start.

Step Three: Understand That Saving Money Is a Priority Decision

Here's something else I think we need to talk about more often.

Saving money isn't automatically the most important thing you can do with every extra dollar.

I know. That's probably not what you expected the finance person to say.

But think about it.

Maybe you're considering hiring someone because you're completely overwhelmed and can't keep doing everything yourself.

Maybe there's an investment that would help you bring in more customers.

Maybe you have debt that needs your attention.

All of those things matter.

So when someone tells you that you absolutely must have six months of cash saved before doing anything else, I want you to question that advice.

Because your business isn't their business.

Your financial situation isn't their financial situation.

And your tolerance for risk might be completely different.

The real question isn't just:

"How much money should I have?"

It's:

"How important is building that reserve compared to the other things my business needs right now?"

That's a decision you get to make.

And it's a much better decision when you understand your numbers.

Which brings me to another question I hear constantly.

What If I Hate Numbers?

Oh, I love this question.

Because I know there are a whole lot of entrepreneurs out there who would rather do just about anything than sit down and look at financial reports.

And that's okay.

Not everybody is an accounting geek like me.

Here's what I want you to understand.

You do not have to love math to understand your business finances.

Those are two completely different things.

You don't need to start with complicated forecasts, financial models, or a bunch of percentages.

Start with three questions.

1. How much money is coming in?

Look at what your business is bringing in.

2. How much money is going out?

Look at what you're spending.

3. What's the difference?

If you're bringing in more cash than you're spending, that's a useful starting point.

If you're spending more than you're bringing in, that's something you need to understand.

Now, of course, there's more to accounting and cash flow management than those three questions.

But you don't have to understand every complicated financial concept to start making better decisions.

You just have to be willing to look.

Your Financial Reports Should Tell You a Story

This is one of the things I feel most strongly about.

If you're working with a bookkeeper or accountant, their job shouldn't end with handing you a financial statement.

Because what exactly are you supposed to do with a sheet full of numbers you don't understand?

Your financial reports should tell you something.

They should help you understand what's happening in your business.

Why did you make more money this month?

Why are expenses increasing?

Why does your bank account feel tight even though sales have been strong?

What changed?

And maybe most importantly, does the story those numbers are telling match what you think is happening in your business?

Because if it doesn't, that's something worth digging into.

You know your business.

You know your customers, your work, and the effort you're putting into it.

The financial information should help you connect those things to the results you're seeing.

If your bookkeeper is just handing you reports without helping you understand what they mean, ask for more.

Ask them to explain the story.

That's where the real value is.

You Don't Have to Figure Everything Out Today

If there's one thing I want you to take away from this conversation, it's this:

Stop worrying about what everybody else says you should be doing with your money.

Figure out what makes sense for you.

Maybe your next step is calculating your six-month cash reserve.

Maybe it's finding $50 a month to start saving.

Maybe it's sitting down with your bookkeeper and asking them to explain what your financial statements are actually telling you.

Whatever it is, start there.

You don't have to become a mathematician.

You don't have to build a perfect savings account overnight.

And you certainly don't have to pretend you understand something just because you think every other entrepreneur already does.

Trust me. A lot of them have the exact same questions.

Because the more you understand about your business finances, the less intimidating those decisions become.

And that, my friends, is what keeping it simple is all about.