Life’s full of surprises. As a small business owner, proper cash flow management can help you plan for the unexpected—because whether sales are booming or in a slump, you still have to cover your business’s payroll costs and operating expenses. 💸
That’s where a business savings account can help. A healthy cash reserve will support your business through financial storms. ⛈️ But how much cash should a business have on hand? Read on to find the answer to this question and more.
Why your business needs to have extra cash on hand
According to the Bureau of Labor Statistics, 18% of small businesses fail within the first year, and 50% fail within 5 years. These numbers are sobering, but your business doesn’t have to be a statistic.
Cash flow can make or break a business, so it’s important to have enough cash to set your business up for success. A healthy cash reserve protects you, your business, and your employees from economic downturns. 🛟
Plus, price increases, a surprise tax bill, or seasonal sales slumps can quickly shift a small business’s financial situation. But when your business is financially flexible (thanks to having enough cash on hand), you won’t have to take on debt to cover your expenses. 🙌
Relay (that’s us! 👋) is an online banking platform that helps small business owners open, build, and maintain their business savings accounts. With Relay, you can open no-fee business savings and checking accounts and earn up to 2.86% APY* on every spare dollar. Learn more about saving with Relay here. 😎
Signs your business doesn't have enough cash on hand
Your business could be at risk if you don’t have enough cash to cover expenses. Counting on next month’s payments to cover this month’s bills is one of the biggest tell-tale signs of cash flow problems.
Watch out for these other red flags 🔴 as you evaluate your company’s current cash on hand:
Your cash outflow is greater than your cash inflow. 😥
Your operating expenses keep increasing. ↗️
Your sales are trending downward. ↘️
You’re falling behind on payments to vendors, employees, or landlords. 😰
You’re opening new lines of credit, like business loans, to cover operating expenses. 💳
Your business is growing at a rate that’s not sustainable. 🏃
You’ve exhausted your working capital. 😮💨
You’re dipping into your personal funds to cover your business’s bills. 💰
Your clients are paying late or not paying at all. ⛔
Your profit margin is declining. 📉
You’re paying bills late. 🕒
You’re counting on next month’s revenue to cover this month’s expenses. 📆
Your business bank account balance keeps dropping. 👎
If any of these situations sound familiar, don’t worry! We’ve got you covered. Keep reading to find out how to keep more cash on hand for your business. 🙏
How much cash should a business have on hand?
From startups to established companies, every business needs a cash buffer. As a general rule of thumb, experts recommend small businesses save at least 3 to 6 months’ worth of expenses.
That said, every business is different, which means your savings goal might be different. To decide how much cash your business needs to keep on hand, it's important to consider the below factors. ⬇️
Operating expenses 💵
These expenditures are related to your day-to-day business operations. For example, you may want to factor rent, utilities, payroll, and supplies into your operating expense budget. If your expenses are barely covered by your monthly income, you may want to keep more cash on hand.
Business growth 🌳
When determining how much extra cash to save, consider your business goals. Are you happy with your current situation, or do you want to expand your operation in the next few years?
If you’re growth-oriented, you may need to save a bit more. That’s because startups are typically less financially stable than established companies with steady cash flow and clientele.
Type of business 🛍️
Entrepreneurs should also factor their industry into the equation. Seasonal fluctuations are more common in certain industries, while others have high employee turnover rates. Aligning your savings strategy to your industry’s cash flow trends can help you minimize financial liabilities. 🙌
Cash flow trends 📈
Analyzing your cash flow over the last 12 months can help you identify revenue trends. You can start by looking at your accounts receivables.
Let’s say most customers pay on the last day of the month. If most of your bills are due the third week of the month, you need to make sure you don’t deplete your cash balance before that point.
Next, review your balance sheets. ⚖️ These financial statements cover a company’s current assets, equity, and liabilities. Balance sheets can tell you about your company’s current financial health. ❤️🩹
As you review cash flow, check for any sales peaks and dips. See if you can spot any patterns. For example, you may find that revenue peaks at the beginning of the month and dips toward the end.
When you review your financial statements, you may find seasonal trends, too. Maybe you are busier in summer 🌅 than in winter. ❄️ Identifying sales spikes and slumps can help you plan for slow periods and adjust your spending accordingly.
This exercise will also help you create a cash flow statement and cash flow projection. These financial documents are designed to help you as the business owner prepare for any cash flow situation. And if you can't make sense of your finances alone, remember that you can always ask your accountant or bookkeeper for help. 😌
11 ways to keep more cash on hand for small businesses
Saving money is one of the easiest ways to keep more cash on hand. However, as a growing small business owner, it isn’t always easy to find extra money in your budget. 😬
Here are some practical tips to help you grow your savings account:
1. Cut down on expenses: Spending less is one of the best ways to free up room in your budget. For example, sourcing cheaper supplies can help you save more cash. Also, look for ways to increase productivity and output. 💻
2. Embrace technology: Automation can help you streamline your business's financial processes. For example, Relay lets you sync your accounting software to your business bank accounts, so you can speed up bookkeeping—and spend more time growing your business. 🥳
3. Take advantage of interest: A high-yield savings account can help your money grow faster. These accounts offer higher interest rates than traditional savings accounts, allowing you to earn more on your account balance. 💸
4. Stay on top of cash flow: Make a weekly appointment with yourself to review your bank accounts and budget, so you can avoid overspending and keep track of your income. 📆
5. Open a business savings account: A dedicated business savings account gives you an accessible cash buffer. Plus, when you put your cash into an account specifically for savings, you'll be less likely to accidentally spend it. 🏦
6. Explore new revenue sources: Boosting revenue is a great way to save more cash. Let’s say you own a home improvement business, and your sales slump during the fall and winter. You could expand your services to include raking leaves or putting up outdoor holiday decorations. 🎄
7. Go green: Eco-friendly swaps can help you cut costs. Energy-saving bulbs and pre-programmed thermostats are a few ways to save on utilities. ♻️
8. Explore new vendors: Cutting inventory costs can increase your profit margin. Wholesale vendors may offer competitive prices. New vendors may offer introductory discounts, too. 🙂
9. Faster accounts receivables: Your business pays the price if your clients are constantly paying late. Consider strategies to streamline your invoicing process and incentivize early and on-time payments. 💰
10. Ask for a discount: It doesn’t hurt to ask, right? Long-term vendors and landlords may cut you a deal to keep your business. 🤑
11. Try the Profit First method: This system prioritizes profit and leverages multiple bank account budgeting to help business owners stay on top of cash flow. The Profit First approach can help you create sustainable growth for your small business. 📈
Build your business savings account with Relay 💸
Every business needs to have enough cash on hand for emergencies. 🚨 But finding extra cash can be challenging for small business owners—especially if you don't have a clear view of your cash flow.
With Relay, you can open 2 business savings accounts, earn yp to 2.86% APY* on your extra cash, and use automated savings features to grow your savings on autopilot.
Plus, you can open 20 individual, no-fee checking accounts. Then, you organize your cash across accounts, dedicating each one to a specific type of expense. This can help you stay on budget, leaving more money left over for your savings each month. 🥳
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Here's a quick example: let's say you struggle to stay on budget with business travel expenses. ✈️ You could create a dedicated Relay checking account just for travel.
Then, whenever you need to spend money on flights or hotels, you'll be able to see exactly how much money is left over for this expense category—at a glance! No more confusing budget spreadsheets or cryptic bank statements. 🙌
Ready to grow your small business savings with Relay? You can apply for an account online in less than 10 minutes. Sign up for Relay here. 😎
*For Relay Subscription Plans with an interest-bearing deposit account, the interest rate and Annual Percentage Yield on your account are accurate as of 10/30/2025 and are variable and subject to change based on the target range of the Federal Funds rate. Fees may reduce earnings:
When you are subscribed to the Starter Plan, the interest rate on your savings accounts is 0.91% with an APY of 0.91%.
When you are subscribed to the Grow Plan, the interest rate on your savings accounts is 1.53% with an APY of 1.55%.
When you are subscribed to the Scale Plan, the interest rate on your savings accounts is 2.65% with an APY of 2.68%.
