How much cash should I keep in my business?

There isn’t one “right” amount of cash every business should keep.

But there is a “right” amount for you, which is where I come in.

A better question is: What does your cash need to protect you from, and what does it need to prepare you for?

Before we decide what to do with excess cash, I want to understand what that cash needs to do for you and your business. Once we answer those questions, determining what should stay liquid and what could be put to work becomes a lot easier.

What does it cost to comfortably run your business?

We’ll start with payroll, rent, inventory, taxes, debt payments and normal operating expenses. But I’m not just looking for an average monthly expense number.

I want to understand your business. How predictable is revenue? How quickly do customers pay? Is the business seasonal? Are there large expenses that hit at certain times of the year?

Two businesses with identical revenue can need very different amounts of cash. My job is to help determine what comfortable liquidity looks like for yours.

What are we protecting against?

Some cash should be boring. If its job is making sure you can cover payroll during a slowdown, replace an important piece of equipment or sleep comfortably when a large receivable is late, it may be doing exactly what we need it to do.

That’s why I don’t automatically look at a large cash balance and say, “We need to invest this.” First, we determine what we’re protecting. Then we decide how much protection you actually need.

What do you want to be ready for?

What if the right employee becomes available? A competitor wants to sell? An expansion opportunity appears? You need equipment? Or you simply see an opportunity where having capital available gives you an advantage?

Cash can buy more than safety. It can buy optionality.

Part of my job is making sure we don’t put money somewhere today that prevents you from doing something important with it tomorrow.

Now, how much is actually left?

Once we’ve accounted for operations, taxes, protection, planned spending and opportunities, we can identify the cash that doesn’t have an obvious job.

Maybe some should remain accessible but could be working harder. Maybe some can be positioned for longer term growth. Maybe reinvesting in the business provides the best opportunity. Or maybe we’ve reached a point where some of that wealth shouldn’t be inside the business anymore.

That’s where this stops being a cash question and starts becoming a wealth strategy question.

Should all of this money still be in the business?

You may have spent years building an incredible asset. Along the way, the business can also become your income, your investment, your retirement plan and a significant percentage of your net worth.

At some point, it makes sense to ask: How much of my financial future do I want tied to one business?

There isn’t a universal answer. But we can look at your business, personal assets, time horizon, taxes, goals and appetite for concentration and figure out what makes sense for you.

So, how much cash should you keep?

Enough to confidently do the jobs we’ve identified. Not an arbitrary percentage. Not a number from an article. And not simply whatever happens to be sitting in the account today.

We figure out what every dollar needs to do, then put it where it can do that job best.

That’s Capital Clarity.