How Much Cash Should Your Business Keep in the Bank

By Eric Rosenberg

Bank Account Balance

In the days my business was a side hustle, I didn’t worry about keeping cash in the bank. When I earned money, I paid myself, set aside a portion for taxes, and knew that my account would refill as I finished client projects and got paid. But today that business is my family’s primary income. If my business account doesn’t get refilled, I don’t get paid.

While I have plenty of savings in case of a rainy day, or a rainy month, I’m now in a situation where I have to decide the right amount of cash to keep in my business checking account and savings account from month-to-month. If you run a business, this is an important decision that shouldn’t be overlooked or ignored.

Set a mental minimum balance for each account

When I set myself out into the world of freelancing full-time, my business bank accounts had a fluctuating balance somewhere between a few hundred dollars and a few thousand dollars at any given time. When I took my business full-time, I converted from an LLC to an S-Corp and starting paying myself a weekly paycheck. With over $2,000 per month in payroll expenses, I knew I had to keep more than what I had been in the business checking account.

I upgraded my business banking and opened new business checking and savings accounts at Chase for the new S-Corp. To avoid a monthly $15 charge from the bank, I had to keep at least $1,500 in the bank. For the first few months before I turned on payroll, I used that as a mental minimum to avoid the fee. As my business stabilized and grew, I set a mental goal to keep at least $3,000 in the business checking account to ensure I could go a full month without messing up my payroll. When I hit that level, I flipped the switch at Gusto and started paying myself each week.

Build in a safety cushion and emergency fund

While I knew I wouldn’t have any problems with $3,000 in the bank, I also knew I would have some unexpected expenses, large travel costs for conferences, and lumpy income and expense cycles that were unfamiliar when I had my day job. Now instead of a predictable number of dollars magically showing up every other Friday, I would be billing monthly and get payments when my clients get around to it. With less predictability, I decided to build in a safety cushion.

I started saving until I hit $5,000 in my business savings account and kept a $3,000+ balance in the checking account at all times. I had to pay my rent, moving expenses, and eat, so I couldn’t just add without taking funds out at the same time. But overall, by working hard and earning more than I spent, I saw my account balances grow. I decided I should have at least three months of payroll in the bank. That meant having at least $6,000 in the checking account at any given Go to the full article.

Source:: Business 2 Community

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