How much money should I keep in my business bank account?

The truth is, there’s no straight answer. How much cash you need in your business will depend on its size, sector, costs and how predictable your income is.

There are, however, a few areas you can keep an eye on to make sure your business has enough cash to cover its commitments and isn’t caught short.

Keep your eye on the ball

You’ll get plenty of advice about how much cash you should keep in your business, but there’s no one-size-fits-all figure. A consultancy with low overheads will have very different cash requirements to a business with a large team, premises and significant supplier costs.

When asked this question, I always use a water tank as an example.

Imagine that the cash or working capital within your business is the water in the tank. The money your clients pay for your services is the water flowing in. As you pay salaries, suppliers, rent, business rates, software subscriptions and other costs, the water flows out.

The important thing isn’t necessarily that more water comes in than goes out every month. What matters is having enough water in the tank to cover what needs to flow out, particularly when income is unpredictable or payments are delayed.

This may be a simplistic way of looking at cash management, but it shouldn’t be more complicated than that. The danger comes when you take your eye off the situation and start spending more than the business can comfortably afford, whether that’s investing in new technology, taking on additional costs or taking more money out of the business.

A healthy cash position gives you breathing room when things don’t go according to plan.

Keep your accounts up to date

The only way to manage the cash within your business effectively is to have a clear picture of how the business is performing and where your money is going.

That means preparing up-to-date management accounts on a regular basis.

As a minimum, you should aim to review your figures quarterly, but monthly management accounts will give you a much clearer picture and allow you to spot issues before they become problems.

Your management accounts should include a Profit & Loss statement, showing how the business is performing over a particular period. You should also review your balance sheet, which gives you a snapshot of the business’s assets, liabilities and what it owes.

Most importantly from a cash perspective, you should have a cash-flow forecast showing what money you expect to come into the business, what needs to go out and whether you have enough cash available to meet your upcoming commitments.

A rolling cash-flow forecast can be particularly useful when you’re dealing with seasonal fluctuations, delayed client payments or significant upcoming expenses.

Know your costs

It may seem obvious, but not every business owner has a clear picture of exactly how much it costs to keep their business running each month.

Start by looking at your fixed and regular costs. What are you paying for rent, business rates, utilities, insurance and salaries? How much are you spending on software, cloud services, technology, telecoms and professional services?

It’s easy for smaller monthly expenses to build up, too. Businesses can end up paying for multiple software subscriptions, AI tools, marketing platforms and other services that are no longer being used regularly.

Review your costs regularly and ask yourself whether each one is still delivering value.

You should also think about which costs are genuinely fixed and which can be made more flexible. For example, can your team be cross-trained to cover different responsibilities during quieter periods? Could you adjust your use of contractors or temporary support depending on demand?

The aim isn’t simply to cut costs. It’s to make sure your cost base is appropriate for the size and needs of your business.

It’s also worth reviewing what you’re paying your suppliers. Shop around, renegotiate contracts where possible and look at everything from professional services and software licences to office costs and payment processing fees.

Know your break-even point

Once you understand your costs, you need to know how much revenue the business needs to generate to cover them.

Your break-even point is the level of sales or income you need to cover your costs, before making a profit.

Knowing this figure gives you a useful benchmark. If your monthly revenue falls below it, you’ll know that you need to look closely at your costs, pricing or sales pipeline.

It can also help you make better decisions about hiring, investing in new technology or taking on additional commitments.

Don’t forget about late payments

A business can be profitable on paper and still run into cash-flow problems.

One of the biggest reasons is simply not getting paid on time.

If you invoice a client for £20,000 but they don’t pay for another 60 days, that £20,000 may appear as revenue in your accounts, but it isn’t available to pay your bills today.

Keep a close eye on outstanding invoices and have a clear process for following up on overdue payments. The sooner you identify a potential payment issue, the more time you have to manage the impact on your cash flow.

Keep the water in the tank

Ultimately, managing cash comes down to knowing what is coming in, what is going out and what you’re likely to need in the months ahead.

Keep your accounts up to date, understand your costs, know your break-even point and regularly review your cash-flow forecast.

There’s no magic figure that every business should keep in the bank. The right level of cash will depend on your individual circumstances.

But by keeping your eye on the water level in the tank, you can make sure there’s enough there when you need it, giving you the confidence to make decisions and keep your business moving forward.