Most small business owners have one emergency fund, if they have one at all. It sits in a single account and it’s supposed to protect the household and the business at the same time. That works right up until the week both need it.
If you own a business, even a small side one, I think you need two cushions: one for your family and one for the business. This post is about sizing the second one, because that’s the one almost nobody calculates.
Disclosure: one link below is an affiliate link, so I may earn a commission if you sign up, at no extra cost to you. I only recommend what I use or would use. I’m not a financial advisor and this isn’t financial advice. Rates mentioned were checked in late September 2026 and will change.
How thin most businesses actually run
The JPMorgan Chase Institute once looked at the bank accounts of roughly 597,000 small businesses and asked a simple question: if every dollar of revenue stopped today, how many days could each business keep paying its bills? They called it “cash buffer days.”
The median was 27 days. A quarter of businesses had 13 days or fewer. Restaurants, at the median, had 16. The data is from 2015, but I’d be surprised if the picture has changed much. Most small businesses are about one bad month from real trouble.
You can calculate your own number in about ten minutes:
- Add up everything the business spent over the last three months and divide by 90. That’s your average daily outflow.
- Look at the cash the business has right now, not counting money already owed to someone (like taxes you’ve collected).
- Divide cash by daily outflow.
If a business spends $9,000 over three months, that’s $100 a day. With $2,400 in the account, it has 24 buffer days. Most people are surprised by their number, and not in a good way.
Why one emergency fund isn’t enough
I’ve written that my personal emergency fund earns almost nothing on purpose. Its whole job is to be there. But a personal emergency fund is sized around household emergencies: a job loss, a medical bill, a car that dies.
Business emergencies are different, and they tend to show up at the worst times. A big customer leaves. A machine or a truck breaks. A payment processor holds your funds for a week. A slow season runs longer than usual. Now picture one of those landing the same month your household has its own emergency. If it’s all one pot, you end up choosing between the mortgage and the equipment loan. That’s the choice I’d do almost anything to avoid.
Separate cushions mean a business problem stays a business problem.
How big should the business cushion be?
The common advice is three to six months of expenses. Mike Michalowicz’s Profit First system recommends building a separate “Vault” account to about three months of business expenses. I think those are good starting points, but I’d tweak the method in two ways.
Use fixed costs, not total costs
If revenue stops, a lot of your costs stop with it. You don’t restock product that isn’t selling. What keeps going is the stuff with a contract or a due date: loan payments, insurance, software, rent on a storage unit or shop, phone, vehicle costs. Those are the months you’re really covering.
Size it to your worst realistic quarter
Instead of picking a number out of the air, I’d ask: what’s the worst quarter I can realistically imagine for this business, without getting apocalyptic? Then write it down.
Here’s a hypothetical to show the method. These aren’t my numbers or anyone’s real business.
| Worst-quarter event | Rough cost |
|---|---|
| Biggest customer or location leaves; replacing it takes ~2 months | $1,800 in lost profit |
| One major equipment repair | $1,200 |
| A slow month where revenue drops by a third | $900 in lost profit |
| Three months of fixed costs you still owe | $3,300 |
| Worst realistic quarter | ~$7,200 |
That’s the target. Notice it lands somewhere between three and six months of fixed costs, which is why the rule of thumb works. But now you know why it’s that number, which makes you far more likely to actually fund it and far less likely to raid it for inventory.
A few things push the number up: one customer who’s a big share of revenue, serious seasonality, a lot of debt, older equipment, or a household that depends on the business to pay the bills. If several of those are true, I’d lean toward six months or more.
Building it without feeling it
Nobody builds a reserve from leftovers. There’s never anything left over. The method that works is the same one I’ve written about for personal money: automate it through separate bank accounts.
- Pick a fixed percentage of every deposit, something like 5% while you’re building.
- Move it on the same days every month. Twice a month is easy to remember.
- Keep it at a different bank from your operating account. Friction is the feature.
- When the cushion is full, turn the percentage toward paying yourself or paying down debt.
At 5% of $5,000 a month in deposits, that’s $250 a month. The $7,200 hypothetical target takes a little over two years. That feels slow until the first time you need it.
Where the cushion should live
This money has two jobs: be there quickly, and don’t lose value. That rules out stocks and anything volatile. Two good homes:
- A high-yield savings account. Leading online banks were paying roughly 4% to 4.2% APY in late September 2026. Marcus by Goldman Sachs was around 4% on its own pages, with no fees or minimum. One catch: Marcus savings is a personal account, so if your business has its own EIN, a business savings account may be the cleaner fit.
- Short Treasury bills. The 3-month bill was yielding about 4.1% on September 22, 2026, and T-bill interest skips state income tax. Once a reserve gets into five figures in a high-tax state, a simple ladder at a brokerage starts to earn its setup time.
On $7,200, 4% is under $300 a year. That’s not the point. The point is that the money is there, and it’s quietly beating a checking account while it waits.
What the cushion makes possible
This is the part I find a little bit freeing. A business without a cushion makes every decision from fear. It takes the bad customer because it can’t afford to lose revenue. It borrows at 20% when a machine dies. It says no to a great opportunity because it can’t cover a slow month while it ramps up.
A business with a cushion gets to be picky. It can say yes to the right new location without panicking, and each good location adds cash flow that makes the next cushion easier to fill. That’s how a small thing becomes a real thing.
If you run a route business, the next step after the cushion is usually the next placement. There’s also an operator-focused version of this question, how much cash reserve a small business should keep, with a five-factor risk score if you like a more mechanical method.
Try this this week
Calculate your business’s buffer days. Just that. Then write your worst realistic quarter on a sticky note and put it where you’ll see it. If you want to think about the bigger picture of cushions and runway, creating your financial freedom runway is a good next read.
