There is no evidenced universal figure. The defensible approach is to build a floor from your own forecast: the fixed outflows that fall due over a set cover period, plus the largest dated obligation inside your horizon, plus an allowance drawn from your own worst month. Then read the result back as weeks of cover.

Why a months-of-expenses rule cannot answer the question

The familiar answer is three to six months of operating expenses, and it is repeated by organisations worth taking seriously. ICAEW's business advice service, in guidance published in 2022 on coping with rising costs, puts it as a general rule that three months of costs available in cash is a good minimum goal, while noting in the same paragraph that the appropriate cushion differs in every business. SCORE, the US Small Business Administration's mentoring partner, published an article in October 2018 stating that most financial experts recommend three to six months of operating expenses, and immediately warned that applying that to every business is misleading. The British Business Bank's cash flow guidance gives moving from one month's available cash to two or three months' as an example of improving a cash position.

What none of them supplies is a derivation. No study classifies businesses by reserve level and tests the outcomes, and none of these sources cites one. The rule is advisory convention, arrived at by judgement and repetition, which is a different thing from a measured optimum. Treat it as a sense-check, not an answer.

The measured evidence that does exist describes far smaller businesses than yours. The JPMorgan Chase Institute's transaction research, which divides a firm's average daily cash balance by its average daily outflows to produce "cash buffer days", found a median of 27 buffer days across 597,000 US small businesses in 2015. Its current nationwide sample, covering 2.1 million firms trading in 2025 and published in 2026, reports a median of 17.6 buffer days. The two figures are not a like-for-like series: the samples and the selection rules differ, so the fall from 27 to 17.6 should not be read as a decade-long decline. More importantly for you, the median business in that 2025 sample turned over $125,200, which is a fraction of the £2.5 million to £10 million band this page is written for. The figures show how thin buffers typically run in a very different population. They are not your target.

There is a prior question, whether a business holding reserves needs to forecast at all, and our guide to why you should forecast cash flow if you have reserves sets out where a reserve alone is genuinely enough. This page assumes you have decided you need a number, and takes the next step.

What a reserve floor is actually made of

A reserve floor is not a savings target. It is the balance below which your next set of dated obligations stops being comfortably payable, and it has three parts.

The first is your committed outflow over a chosen cover period. These are the payments that happen whatever else does: net payroll, PAYE and National Insurance, rent, core supplier runs, finance and lease payments. Choosing the cover period is the one judgement call, and four weeks is a defensible default for a monthly payroll cycle, because it guarantees one full payroll plus the tax that follows it.

The second is the largest single dated obligation inside your forecast horizon that the first part does not already cover. For most businesses on quarterly VAT that is the VAT payment, though it might be corporation tax, an annual insurance renewal or a committed capital payment. The reason it sits outside the first component is timing: a quarterly payment does not appear in an average month, so a floor built only from typical outflows will be short in the month it lands.

The third is a downside allowance, and it comes from your own history rather than a multiplier. Take the worst four-week stretch of net receipts you have actually recorded in the last two years and use the gap between what you expected and what arrived. Research on why companies hold cash supports the direction of this: studies of listed firms by Opler, Pinkowitz, Stulz and Williamson (1999), Han and Qiu (2007) and Bates, Kahle and Stulz (2009) consistently find that riskier cash flows are associated with higher cash holdings, particularly where a firm's access to finance is constrained. What that literature does not give is a formula converting volatility into a floor for a private company of your size, so the allowance is your own measured downside, not a statistical construct.

One thing stays outside the floor. An undrawn overdraft or revolving facility is liquidity, but it is not reserve. Its availability depends on the terms in your agreement, which can include conditions you might breach in precisely the month you need it. Show it as headroom on a separate line and read your facility documentation for what makes it available.

How to size a cash reserve from your forecast

Step 1: Total your committed outflows over the cover period. Pull the fixed, dated payments for the next four weeks from your forecast rather than from an average: net payroll, the PAYE and NI that follows it, rent, contracted supplier payments, finance and lease instalments. Exclude anything discretionary and anything that depends on a sale happening. This is the part of the floor that protects the payments you cannot renegotiate at short notice.

Step 2: Add the largest dated obligation in your horizon that step 1 does not cover. Look across the next 13 weeks and take the single biggest statutory or contractual payment that does not fall inside your four-week block. In the UK, VAT for a quarterly filer is due one calendar month and seven days after the period ends, PAYE and NI are due by the 22nd of the following tax month for electronic payers, and corporation tax is due nine months and one day after the year end for companies with profits below the instalments threshold. Add the largest of these, once. Do not add every obligation in the quarter, because you are sizing a floor, not funding the quarter in advance.

Step 3: Add a downside allowance from your own worst month. Find the four-week window in the last two years where cash receipts fell furthest short of what you expected, and use that shortfall. If your records will not support that, use the value of your largest customer's typical monthly invoicing instead, and say on the face of the calculation which one you used. This is the component that turns a floor into something that survives a bad month rather than an average one.

Step 4: Read the floor back as weeks of cover, then set it in your forecast. Add the three components to get the floor in pounds, divide it by your average weekly outflow, and you have the number in the language everyone else uses. Then put the figure into your forecast as a threshold so the question stops being "how much should we hold" and becomes "on what date do we cross it". A floor you have to recalculate manually is a floor you will stop checking.

A worked example

The figures below are illustrative. They describe a UK single-entity business of around 25 staff and roughly £3 million turnover, on monthly payroll and quarterly VAT, looking at a 13-week horizon from Monday 5 October 2026. The statutory timing is real; the amounts are invented for the example.

Average weekly outflow is £61,500, so the floor represents 6.2 weeks of cover, a little over six weeks. That is the number this business should hold as a minimum, and the number it should set as a threshold in its forecast.

Two details from the calendar are worth noticing, because they are the kind of thing an average-based floor hides. In this horizon the VAT deadline of 7 November falls on a Saturday, and 22 November, the PAYE date, falls on a Sunday. Where a deadline falls on a weekend or bank holiday, HMRC requires cleared funds to arrive on the last working day before it unless you pay by Faster Payments. Both payments therefore land earlier than the headline date suggests, which pulls two of the largest outflows of the quarter into the same week.

Now the sense-check. Three months of this business's committed costs is roughly £800,000, more than double the floor. That does not make the convention wrong, and it does not make the floor wrong. They answer different questions. The floor is the minimum that keeps dated obligations payable through a bad month. Three months of costs is a resilience target, closer to how long you could keep trading with receipts interrupted. A business can be right to hold the floor and still want to build towards something larger, and it should know which of the two numbers it is talking about.

What changes the number

Growth moves it quietly. A floor is a fixed sum, and cover is that sum divided by your outflow, so the same £379,000 that buys 6.2 weeks at £61,500 a week buys 5.1 weeks once weekly outflow reaches £75,000. Nothing has gone wrong; the number simply stopped meaning what it meant when you set it.

Seasonality moves it upwards at the peak. A floor sized against a typical four weeks understates the requirement in the four weeks when stock, staffing or supplier payments are at their highest. Size the floor against your peak dated requirement rather than your average one, and take the peak from your own forecast rather than from a multiplier: no published source establishes a general seasonal multiplier for a cash reserve.

Customer concentration changes the character of the third component. Where one customer can move a month's receipts, a late payment stops being a statistical variance and becomes a single event you can name. The downside allowance should then reflect that specific receipt rather than a blended average, and the delayed payment is better modelled explicitly in the forecast than approximated inside the floor.

A second entity, currency or bank changes what the floor even measures. Group cash is not available cash: money in one entity does not meet another entity's payroll on Friday. A group needs a floor per entity that pays its own obligations, with the consolidated view on top. We cover the mechanics of the group view in our guide to multi-entity cash flow consolidation.

When to recalculate

Four weeks of committed outflows changes every time the business does, so the floor has a shelf life. Recalculate it when headcount steps up, when you take on debt or a lease, when you win or lose a customer large enough to matter, when you add an entity or a currency, and at least once a quarter regardless. Recalculating takes ten minutes once the components are written down, and an out-of-date floor is worse than no floor, because it reads as a decision when it is really an artefact.

How Float fits

The method above works on paper. What a forecasting tool changes is whether the floor stays current and whether anyone notices when you approach it.

Float builds your forecast from the reconciled bank transactions, invoices and bills in Xero or QuickBooks Online, refreshed every 24 hours or on demand, so the committed outflows in step 1 come from your accounts rather than from a spreadsheet someone maintains by hand. The 13-week view is the horizon step 2 asks you to look across, with every expected receipt and payment mapped to the date it lands. You can set a threshold at your floor and see the date your balance is due to cross it, which is the step 4 question answered continuously rather than monthly. Scenario layers let you model a slower-paying customer or a step up in headcount alongside your base forecast, so you can test what your floor is worth under the conditions that would stress it. Every plan includes a set allowance of scenario layers, listed on our pricing page, with more available at additional cost. For groups, multi-entity consolidation shows the combined position while letting you drill into any single entity, which is what a per-entity floor needs.

If you have a number in mind for your reserve but could not show the working behind it, start a free 14-day trial and build the floor from your own figures. Float connects to Xero or QuickBooks Online in about three minutes.

Frequently asked questions

How much cash should a business keep in reserve?

There is no evidenced universal figure for a business of any given size. The most repeated convention is three to six months of operating expenses, and ICAEW's business advice guidance calls three months of costs a good minimum goal, but none of the organisations stating it derives it from research. A defensible floor is built from your own numbers: committed outflows over a cover period, plus the largest dated obligation in your horizon, plus a downside allowance from your worst recorded month.

Is three to six months of expenses a real rule?

It is a real convention, repeated by named organisations including ICAEW and SCORE, but it is not an evidence-based standard and SCORE itself warns against applying it universally. It is best used as a sense-check on a floor you have calculated, not as a substitute for calculating one. The two numbers usually differ, because a floor protects dated obligations while a months-of-expenses target measures how long you could trade with receipts interrupted.

How do you calculate a cash reserve from a cash flow forecast?

Total the fixed, dated outflows over a cover period, typically four weeks for a monthly payroll cycle. Add the single largest statutory or contractual payment falling inside your forecast horizon that the cover period does not already include. Add an allowance equal to the worst four-week receipts shortfall in your own recent history. Divide the total by your average weekly outflow to express it as weeks of cover, then set that figure as a threshold in your forecast.

Should an overdraft count towards a cash reserve?

Treat it as separate. An undrawn committed facility is liquidity headroom and is worth showing next to your reserve, but its availability depends on the conditions in your facility agreement, and those conditions can bite in exactly the circumstances that would make you want to draw it. Check what your agreement requires before treating any part of a facility as reserve.

Should we hold VAT and PAYE money separately from working cash?

No rule requires it, and no professional body prescribes it in those terms. As an internal convention it is sound: money collected for HMRC is already committed, so counting it as spare reserve overstates what you have. Whether you hold it in a separate account or simply mark it as committed in the forecast matters less than not counting it twice.

How often should a cash reserve be recalculated?

At least quarterly, and immediately after any structural change: a headcount step, new debt or a lease, a large customer won or lost, a new entity or currency. The floor is built from a snapshot of committed outflows, so it drifts out of date at the speed the business changes.

Is Float secure enough for our IT team?

Float connects to your accounting platform through the official API, and the connection is one-way and read-only, so Float can see your data but can never edit, add or delete anything in your accounts. Access inside Float is controlled with user roles, two-factor authentication is mandatory for Xero-connected users, and you can disconnect the integration whenever you choose.

How much does Float cost?

Pricing depends on the plan and the number of entities you connect, and every plan starts with a free 14-day trial with no credit card required. Current plans and what each includes are on our pricing page.