Question # 1 - How much cash should I keep in the business's operating account?
Updated: Oct 26, 2021
I recommend keeping 1.5 times your monthly expenses in the operating account and 3 times the monthly operating expenses in a separate account labeled RESERVE.
This keeps you from accidentally overdrawing the operating account and removes your reserve cash from being spent.
How do you calculate the right amount? I go to my last 3 bank statements and look at what was spent over the past 3 months and average the total. Quick and easy.
Keeping money in a separate account for Reserve is essential in the event of a "bad month".
Many businesses were able to navigate during COVID-19 shut-downs because they had reserve cash.
What if you don't have money right now to put in a Reserve account? Open one TODAY and put what you can into it every week. It will build.
This is one way to pay yourself first.