How much should I keep in my business checking account?

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How much should I keep in my business checking account?

Running out of cash is a nightmare for small businesses, and it presents a real threat. Even profitable companies can find themselves in trouble with cash flow management when they don’t have enough liquid funds to cover unexpected expenses or capitalize on sudden opportunities.

This leaves many business owners asking, “How much money should I keep in my business checking account?”

It’s not always a straightforward answer. Often, the ideal amount depends on several factors, including your industry and business type, operating expenses, plans for growth, and cash flow projections. You may also decide to maintain more or less in your checking account based on interest rates, business needs, and economic trends.

In this article, Bluevine will explain how much cash is ideal to have on hand, the benefits of business bank accounts, and some nuanced considerations when choosing a banking platform.

What you need to know

• Determining your ideal cash reserves can vary based on your business type, operating expenses, growth plans, and projected cash flow trends.
• Maintaining a diversified banking structure with separate checking, savings, and potentially money market accounts helps balance accessibility with financial security and earning potential.
• Optimizing your business checking strategy involves choosing platforms that offer competitive interest rates (APYs) and minimal fees to maximize your funds’ efficiency.
• Generally, it’s recommended you keep three to six months of expenses as a baseline, but you may consider maintaining nine to 12 months’ worth depending on your industry and seasonality.

How much cash should a business have on hand?

Determining the optimal amount of cash to keep on hand depends on several factors unique to your operation. While there’s no exact average cash on hand for small businesses, some experts recommend keeping three to six months’ worth of operating expenses as a general rule. But your specific circumstances might call for more nuanced planning.

According to Ramon Liriano, COO of Elevated Tax Strategies, “The amount to keep in your business checking account depends on your risk tolerance and business type, but a solid rule is three to six months of overhead for moderate operations, or nine to 12 months if you’re more conservative.”

Liriano adds, “Be sure to customize this management strategy with your accountant so it fits your unique cash flow needs.”

This also leads to another common question: How much should a business have in savings alongside operational funds? Let’s explore the key considerations that should influence your decision.

Type of business

Service-based businesses generally require less cash on hand (typically two to four months of operating expenses) because they don’t carry the significant upfront costs associated with physical inventory or equipment. Manufacturing companies or retail stores may need larger cash reserves (often four to eight months of operating expenses) to handle inventory purchases and equipment maintenance, while professional service firms might operate efficiently with smaller balances, typically in the range of one to three months of operating expenses.

Operating expenses

Your monthly burn rate—including payroll, rent, utilities, and other fixed expenses—serves as the foundation for calculating your minimum cash cushion. Businesses with higher fixed costs relative to variable expenses generally benefit from maintaining larger cash reserves (four to six months of expenses) to weather potential downturns, while those with more variable cost structures might manage with smaller reserves (around two to three months of expenses).

Business growth plans

A common question for expanding businesses is: How much in cash reserves should a business have when planning for growth? Companies planning significant expansion, equipment purchases, or hiring initiatives should maintain higher cash reserves (typically six to 12 months of operating expenses plus projected growth costs). Generally, you’ll want enough to fund planned initiatives plus a buffer for unexpected costs.

Having sufficient liquidity ensures you can act quickly on growth opportunities without resorting to expensive emergency financing or missing out altogether.

Projected cash flow trends

Seasonal businesses face unique challenges that require careful cash management (often needing six to nine months of operating expenses to cover slow periods). If your cash flow fluctuates unpredictably throughout the year, you’ll need larger reserves to carry you through slower periods while maintaining enough flexibility to prepare for busy seasons. Businesses with steady, predictable cash flow can typically operate with smaller reserves (around three to four months of expenses).

What types of accounts should I have for my business?

Diversifying your business banking structure can optimize your earning potential and provide financial security. Most successful businesses maintain several types of accounts, each serving different purposes in their financial ecosystem. This approach allows you to balance accessibility with growth potential.

• Checking: Your primary operating account handles day-to-day transactions, incoming payments, and regular expenses. This account should contain enough funds to cover immediate needs while remaining easily accessible.
• Savings: A traditional business savings account can provide a secure place for funds you don’t need immediately while earning modest interest rates. However, you may not need a separate savings account if your business checking account already offers competitive APY on your operating balances and provides Federal Deposit Insurance Corporation (FDIC) insurance beyond the standard $250,000 limit.
• Money market account: These accounts typically offer higher interest rates than traditional savings accounts and may include check-writing privileges, making them ideal for funds you want earning interest but might need to access occasionally for larger expenses. For businesses with significant cash reserves seeking maximum yield and enhanced FDIC protection, consider a treasury account, which can provide institutional-level returns and coverage.

Organizing your cash flow

The most prudent way for businesses to manage cash flow, including excess cash, involves a structured method that can ensure liquidity, security, and growth potential.

If your business checking account doesn’t earn annual percentage yield (APY), you’re missing out on passive income. Now, you could move excess cash into a savings or money market account to earn more, as mentioned above. However, some business banking platforms let you open multiple checking accounts, or even sub-accounts to help you organize your finances the way you want––all while earning APY on your operating balances without needing to move money around.

“Our Elevated Cash Flow Method involves dividing funds into key buckets: 25–30% for taxes, 40–60% for owner’s pay, 15–25% for savings, and 10–20% for operations. You can also automate these splits using automatic transfer rules to avoid manual errors and safeguard yourself against overspending,”

Elevated Tax Strategies’ Liriano says.Of course, these percentages should add up to 100% and be adjusted based on your business’s revenue, operational needs, and projections.

5 benefits of business bank accounts

Properly structured business bank accounts offer numerous advantages beyond simple cash storage. Here’s how dedicated business accounts can strengthen your company’s financial foundation.

1. Improved financial tracking

Separate business accounts create clean financial records that simplify accounting, tax preparation, and financial analysis. This separation from your personal finances makes it easier to monitor business performance and identify areas for improvement.

2. Enhanced professional image

Paying vendors, employees, and taxes from dedicated business accounts projects professionalism and credibility. Clients and partners gain confidence when they see that your business operates with proper financial infrastructure.

3. Passive income generation

Strategic use of business accounts with high APYs allows your reserve funds to generate income even while sitting idle. The higher your balances and the better your rate, the more meaningful this passive revenue stream becomes.

4. Government-backed fund safety

FDIC-insured business accounts protect your funds up to $250,000, providing peace of mind that your company’s financial foundation remains secure even if your banking institution faces difficulties. Some banking platforms will also offer extended FDIC coverage beyond the standard $250,000 amount, through something called a “sweep network.”

5. Strategic business safety net

Well-funded business accounts protect against unexpected challenges, from economic downturns to sudden expenses. This financial buffer gives you time to adapt without making panicked decisions that could harm long-term growth.

Tips for deciding how much money to keep in your checking account

Once you understand the key factors that influence your cash needs, implementing a strategic approach can help you maintain the right amount. These practical tips will help you make informed decisions about your business checking account balance.

• Regularly review your budget and expenses: Conduct monthly or quarterly reviews of your actual spending versus projected expenses to identify trends and adjust your cash reserves accordingly.
• Consult with a financial advisor: A qualified financial professional can help analyze your specific business model, cash flow patterns, and business growth plans to recommend an optimal cash management strategy.
• Track your minimum balance requirements: Monitor your account over several months to identify your lowest comfortable balance, then add a buffer to ensure you never fall below operational needs.
• Consider your payment timing: Factor in when you typically receive payments from customers and when your major expenses are due to avoid cash flow gaps that could require emergency funding.
• Plan for seasonal fluctuations: If your business experiences predictable busy and slow periods, build your reserves during peak times to carry you through leaner months.
• Separate operational funds from growth capital: Keep money for day-to-day operations distinct from funds planned for expansion, equipment purchases, or other strategic investments to avoid accidentally spending growth capital on routine expenses.

How to manage cash amidst interest rate changes

With the expectation of potentially multiple rate cuts in the near future, holding on to excess cash could seem less attractive due to lower interest earnings. But there’s no one-size-fits-all solution for cash flow management.

“Businesses aiming for growth should consider strategically reallocating cash reserves toward higher-return investments instead of letting funds sit idle,” recommends Liriano. “We advise clients to trim their operational savings slightly and redirect toward things like inventory, hiring and training, or property/equipment purchases—which may become more affordable with cheaper financing.”

He adds, “Always consult an accountant or trusted financial advisor for advice that’s tailored to your business.”

Considerations for choosing the right banking platform for your business accounts

Not all business banking solutions are created equal. Finding the right partner requires evaluating several key factors that will impact your day-to-day operations and long-term financial health.

Products and services

Look for banking platforms that offer comprehensive business solutions beyond basic checking. This might include lending options, automated bill pay, business credit cards, and other services supporting business needs.

Interest rates

Even small differences in interest rates can significantly impact earnings on larger balances over time. Compare APYs across institutions, particularly for savings and money market accounts, where your reserve funds will be stored.

Fees

Monthly maintenance fees, transaction charges, and minimum balance requirements can quickly erode your cash position. Look for transparent fee structures that align with your typical banking patterns and volume.

Features

Modern business banking should include robust online platforms, mobile apps, seamless integrations with accounting software, and efficient payment processing capabilities that save you time and reduce administrative burden. Budgeting tools like sub-accounts can also be a useful feature for cash flow management.

Customer service

Access to knowledgeable representatives who understand business banking needs can prove invaluable when issues arise. Consider the availability of support channels and whether you’ll have dedicated business banking specialists for different needs.

Conclusion

There’s no one-size-fits-all approach to budgeting for your business, particularly amidst the backdrop of interest rates that are expected to change rapidly. What’s most important is that business owners have a clear plan for how they want their business to grow and what’s most important for them. After developing a plan, business owners should choose a banking partner that offers products to make prudent budgeting easy and the features to allow for seamless ease-of-use.

This story was produced by Bluevine and reviewed and distributed by Stacker.