Managing Business Cash Reserves

n I work with business owner clients, one question comes up more often than almost any other: "How should I manage my business cash reserves?" It's an essential question because effectively managing your business cash reserves can mean the difference between thriving and merely surviving in challenging times.

My answer typically begins with a straightforward analogy: manage your business cash reserves as if they're your family's emergency fund. Most financial experts agree that families should have three to twelve months of expenses saved for emergencies. Similarly, your business should aim for a cash reserve to cover three to twelve months of expenses. The exact amount varies based on your business type and specific circumstances.

For most businesses I've advised—whether they're digital marketing agencies, manufacturers, or retail operations—a cash reserve covering three to six months of expenses is usually ideal. This timeframe generally provides sufficient liquidity to handle unexpected downturns, temporary cash flow disruptions, or unforeseen expenses.

Once you've determined the appropriate size of your cash reserves, the next question is: where should you put that cash? You have three primary options, each with advantages and trade-offs: money market funds, business checking accounts, and certificates of deposit (CDs).

Option 1: Money Market Funds

Money market funds are mutual funds that invest in short-term, highly liquid, and low-risk securities, like Treasury bills and commercial paper. Currently, as of mid-2025, money market funds are yielding around 4.5%, although these rates fluctuate with market conditions and prevailing interest rates.

Pros:

• Highly liquid: You can access your funds quickly, usually within one business day.

• Interest earned daily, typically paid monthly.

• Generally offers competitive interest rates relative to standard checking accounts.

  
  

Cons:

• Rates fluctuate based on market conditions.

• Not FDIC-insured, though considered relatively low-risk.

  
  

Money market funds offer flexibility, making them ideal if you foresee needing to access your reserves regularly or on short notice.

Option 2: Business Cash Checking Accounts

Many local credit unions and larger banks offer business checking accounts with competitive interest rates to attract business owners. Rates can vary, but they generally fall slightly below those offered by money market funds, typically around 3.5% to 4.5% currently.

Pros:

• Immediate liquidity: Cash is readily available without needing to sell investments.

• FDIC-insured up to applicable limits, providing added peace of mind.

• Often come with additional banking benefits and incentives tailored for businesses.

  
  

Cons:

• Interest rates usually slightly lower than money market funds or CDs.

• Potential account fees or balance requirements depending on the bank.

  
  

Business checking accounts can be attractive if ease of access and minimal management effort are priorities.

Option 3: Certificates of Deposit (CDs)

Certificates of Deposit are offered by banks and credit unions, allowing you to lock in a fixed interest rate for a specified term, typically ranging from three months to two years. CDs often provide higher yields than money market funds and checking accounts, especially during rising interest rate environments.

Pros:

• Often higher yields compared to other cash reserve options.

• Fixed interest rate, providing predictable returns over the CD term.

• FDIC-insured, making them very safe.

  
  

Cons:

• Funds are locked for the duration of the term; penalties may apply if you withdraw funds early.

• Less flexible than money market funds or checking accounts.

• If interest rates rise significantly after your purchase, you're locked into the lower rate.

  
  

CDs can be an excellent option if you anticipate minimal need for the cash reserves during the CD term and wish to maximize returns safely.

Determining the Right Fit for Your Business

Choosing among these options depends heavily on your business needs, cash flow predictability, and risk tolerance:

• If your business needs regular and immediate access to reserves, a money market fund or business checking account will offer the most flexibility.

• If your priority is maximizing yield and you don't anticipate needing the reserves frequently, a CD may be the most beneficial.

• A blend of these options could also work, allocating some cash to money market funds for liquidity and some to CDs to optimize returns.

  
  

Final Thoughts

Keeping three to six months of operating expenses in readily accessible and yield-earning instruments positions your business to weather financial storms effectively. Whether you opt for the flexibility of a money market fund, the stability of a business checking account, or the yield of a certificate of deposit, the key is to align your choice with your business’s financial strategy and operational needs.

For personalized guidance tailored to your specific situation, consider consulting with a financial professional who understands your business model and industry nuances.

Managing your business cash reserves strategically ensures your business remains resilient, responsive, and ready to seize opportunities when they arise.

About The Author

Marc Lowe is the Founder & President of In The Money Retirement Planning. He is a Certified Financial Planner and member of NAPFA National Association of Personal Financial Advisors, XY Planning Network & Fee-Only Network. He works with retirees and those approaching retirement. He has over a decade of experience helping these folks grow their net worth, organize their finances and build better lives for themselves and their families.

CEO & Founder of In The Money Retirement Planning

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