Set a Business Cash Buffer from Your Actual Risks

Start with cash you can actually reserve

A $24,000 bank balance isn't necessarily a $24,000 buffer. Suppose $9,000 is allocated to known bills and tax payments and $5,000 funds ordinary trading until the next reliable receipts. That leaves $10,000 for contingencies.

These are planning allocations, not separate expenses. Use one consistent method: either include committed cash and its payments in your full forecast, or exclude both from a reserve-only view. Subtracting the allocation from opening cash and also deducting the same bill later would count it twice.

Test three specific interruptions

Start with a cash forecast that already includes normal bills. Change dates and amounts in copies of it. Measure the extra reserve needed at the lowest point, not the total revenue that disappears from one week.

Assumptions: AUD. $24,000 total cash less $14,000 allocated to ordinary commitments leaves $10,000 usable reserve. Scenario shortages below are additional to the normal trading plan, measured before using that reserve.

Scenario	Extra shortfall	Position after using $10,000	Decision
Main customer pays two weeks late	$8,000	$2,000 remains	Reserve covers this example
Quiet month plus urgent repair	$13,000	$3,000 gap	Increase reserve or reduce exposure
Late customer and quiet month overlap	$18,000	$8,000 gap	Test the combined event

Original ASBG worked example. All businesses, amounts and scenarios are fictional. The table contains the same figures as the visual.

The $18,000 combined shortage isn't the sum of the first two rows: some expenses overlap and some receipts arrive before later bills. Build the combined calendar. Don't simply add headline risks.

If the owner selects $18,000 plus a fictional $2,000 allowance for forecast error, the target is $20,000, leaving $10,000 to build. The allowance is a choice for this example, not an industry standard.

Decide which risks belong in your target

Read the customer payment history, upcoming renewals, equipment maintenance record and seasonal sales. Estimate how long a disruption would last and which costs continue during it. Explain why each scenario is plausible. A signed order with a reliable payer and an unanswered overdue invoice need different assumptions.

There isn't one number of months that suits every business. A retailer paying for Christmas stock months early faces a different timing problem from a consultant paid upfront. Test a large customer's late payment separately if one invoice dominates your receipts.

Write the rule for using and rebuilding it

1. Define the triggerSpecify the event the reserve covers and who approves its use.
2. Check the minimumBefore an optional purchase, rerun the forecast through the next major payment dates.
3. Rebuild from available cashSet a contribution that remains affordable after ordinary obligations, then review progress monthly.

In this example, adding $1,000 a month would close the $10,000 gap in ten months, assuming no withdrawals and no change in the target. If the forecast can't support that contribution, the answer is to revise the plan or reduce exposure. Moving money between accounts doesn't create it.

Keep annual bills in their own reserve schedule. Money earmarked for a predictable insurance renewal is already committed, so leave it out of the emergency buffer.

Key takeaways

• Separate normal commitments from contingency money without double-counting.
• Model overlapping risks together using actual payment dates.
• Give the target, use rules and replenishment amount a review date.

Where to get help

The business.gov.au cash-flow guide covers setting money aside for ongoing costs. A business adviser can help test assumptions against your records; this worksheet's reserve amounts are illustrative.