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As a business owner, you’ll be all too aware that unexpected situations can crop up, requiring your time, attention, and often your money. Around one in six (17%) businesses in the UK report having no cash reserves, leaving them vulnerable to these unexpected costs¹. In contrast, having a cash reserve can help you build a more resilient business which can respond to both unplanned expenses and investment opportunities.
In this guide, we’ll define the term cash reserve and discuss its importance, explore how much you should have in a cash reserve, strategies to build it, and mistakes to avoid.
If you’re a business operating internationally, Wise Business can help you build your cash reserve. With multi-currency accounts, you can securely hold and manage over 40+ currencies, potentially earning returns using Wise Interest (capital at risk, growth not guaranteed) or making international transfers at competitive rates.
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Disclaimer: The information in this article is for informational purposes only. Wise does not offer any investment or financial advice and you may be liable to pay taxes on any capital gains. All financial decisions including any savings strategies should be made after thorough research and consultation with a qualified financial advisor. Remember that investments, even in low-risk funds, are never guaranteed and your capital is at risk.
In simple terms, a cash reserve is the business equivalent of a rainy day fund. It acts as a safety net, covering unexpected expenses, any shortfalls caused by lower earnings month, and giving you the flexibility to invest in your business if an opportunity arises.
The general wisdom is that a healthy cash reserve is three months’ worth of costs². This should include all your regular expenses, including salaries, rent, marketing, maintenance, and salaries. However, startups may benefit from a slightly bigger cash reserve, due to the fact that you're likely to be investing more up front and potentially have a lower initial revenue. For startups, it’s more helpful to look at your net cash burn rate and hold a minimum of six months’ burn³. This helps ensure you have enough runway should unplanned expenses crop up, gives you more flexibility with funding, and allows you to break even quicker.
Building an emergency fund is one of the most important and helpful things you can do for your business. It creates a level of resilience and security. Let’s look at some of the reasons why a cash reserve is useful.
- It covers emergencies: We all know that life throws us curve balls and that they normally bring a large bill with them. The money you’ve set aside can help you pay for those emergency equipment repairs, that extra tax bill, or a month with lower than expected sales.
- It provides financial stability: By knowing you have a buffer, you can be confident that you can meet all your financial obligations, regardless of sales figures or late payments from clients.
- It helps you grow.: By having a cash reserve, you’re giving yourself flexibility to pivot as needed. If an unexpected opportunity arises that would allow you to grow your business but requires upfront investment, you have the freedom to do so without failing to meet your regular ongoing operational costs.
- It shows resilience.: This is particularly important if you’re planning to seek external investment. By building a cash reserve, you’re showing potential investors that you have long-term financial stability, which could influence their decision on whether or not to invest in you and your business.
There are a number of different ways you can store and manage your cash reserve, depending on your business set-up. Whatever method you choose, it’s worth storing it in either a business account or an account which is separate from your personal finances, to ensure that you have a clear delineation between your cash reserves and your regular spending.
You can hold your cash reserve in:
- Your regular business account: This gives you easy access but limited interest⁴. Some business bank accounts such as, Starling5 and Mettle6 allow you to set a percentage of every payment you receive into a separate pot, so that you can automate these savings.
- A savings account: These accounts tend to give you higher interest rates but your access is more limited and may require a waiting period⁴.
- A Wise Business account: This can be particularly useful if you work internationally as you can store your cash reserves in different currencies, allowing you to use exchange rates to your advantage and with Interest you can maximise your chance of growth (capital at risk). Wise Business also has a jars feature7, so you can keep this money separate from the rest of your cash.
The idea of saving at least three months’ of expenses can feel incredibly daunting. Here are some strategies that you can use to help you keep on track with building your reserve.
- Monitor and forecast your cash flow: by knowing what’s coming in and what’s going out of your business, you can see how much you need, and therefore how much you can afford to save. Cash flow forecasting tools can help you do this easily, highlighting any potential gaps or surpluses before they occur.
- Get paid faster: To be able to save for your cash reserve, you need your clients to pay you on time. Accounting software tools can help you by automating reminders and following up on outstanding invoices8.
- Automate savings: By setting a percentage of income aside using the Interest features offered by providers like Wise7& (capital at risk, growth not guaranteed) and Mettle6, you can build your cash reserve consistently and automatically.
- Reduce costs: Take a moment to audit your current business expenses. If you notice some of your expenses are now redundant, you could cancel them and reallocate that amount to your cash reserve.
- Increase revenue: Boosting your income will give you more to save as cash reserves. Steps such as increasing prices and retaining key business can be important tools in increasing your revenue and your rainy day savings in one fell swoop.
While building up a cash reserve can be hard work as a startup, reminding yourself of the benefits can help you stay focused on your goal. Let’s take a more in-depth look at some of the key benefits an emergency fund gives us.
A 2019 study by Xero and PayPal found that 43% of small business owners have been awake at night worrying about their business’ cash flow9. A cash reserve can help alleviate some of this stress by creating breathing space. By knowing you have a safety net in place, you can be confident in the financial decisions that you’re making and be sure that you’ll have enough in the bank to cover your regular (and any unexpected) expenses.
As mentioned throughout this article, any business will face unexpected expenses from time to time. A rainy day fund helps you deal with these eventualities, without other areas of your business or personal finances suffering as a result. According to research, 28% of small business owners underestimate technology and equipment costs10. Having a cash reserve means that even if you underestimate costs, you have the money to pay for it.
Just as expenses can be unplanned, so can opportunities to invest in your own business. It could be a course that you discover would be helpful, equipment you were planning to purchase goes on sale or you meet someone who would be the perfect addition to your company. A cash reserve gives you the flexibility to invest at that moment. Of course, it’s then just as important to replenish your savings again.
While having a cash reserve is incredibly helpful, there are some key mistakes that are important to avoid. Let’s take a look at some of those pitfalls and how to set your business up for success.
In making any sort of budget, both personally and for your business, it’s important to estimate how much money you’ll need as accurately as possible. If your budget is unrealistic, you’ll find yourself in constant conflict with it and feel frustrated that what you planned for isn’t realistic. 82% of entrepreneurs miscalculate their startup costs11, causing added stress and potentially meaning a startup requires additional funding. In order to get a realistic estimate, you may want to spend time mapping out costs of software, equipment, and staff you intend to invest in. You may also want to talk to other startups and ask them if they had any costs they underestimated.
While saving is obviously key to building an effective cash reserve, you may want to avoid saving in cash. This is because prices may rise higher than interest rates keep with, reducing your spending power¹³. For this reason, you may want to save in a higher interest account or consider investing in stocks and shares. You may also find a Wise Business account helpful as you can hold over 40+ currencies in your account and earn a potential return with the Interest feature. This can give your money a boost, on the money you hold in foreign currencies.
Keeping an eye on your emergency fund is crucial to make sure it still serves its purpose. It may be that your expenses have increased, therefore requiring a larger cash reserve. You may have previously dipped into your savings, meaning you don't have as much of a safety net as you thought. By reviewing your finances regularly, you'll be able to spot and fill these gaps in good time before you really need to make use of your full reserve.
Having a cash reserve as a small business should be a key part of your financial planning. With 62% of startups reporting unexpected finances in the first year forcing 23% to lose profits and 12 to cut growth plans, a cash reserve can give you the financial stability and resilience you need to continue operating. In addition, an emergency fund gives you flexibility to invest in your business when opportunities arise or tide you over in quieter months, highlighting how valuable a tool it is.
Wise Business can help you manage your cash reserve, in a safe and secure way. The Wise Business multi-currency account allows you to hold money in 40+ currencies and you can maximise your chance to grow when you turn on Interest.
Wise Business Interest allows you to invest in a fund that holds government-guaranteed assets. It pays a variable rate on the pounds, US dollars, and euros you hold. This rate is how much your money could grow over a year, it is based on the fund's rate of return in the last 7 days and tracks the rate by the central bank, which can vary throughout the year.
Investments can fluctuate, and your capital is at risk. The Variable rate is based on the performance of the Fund over a 7-day period ending on 9/26/2025. The Fund has achieved an average annual return of 2.76% over a 5-year rolling period exclusive of fees. Interest is offered by Wise Assets UK Ltd, a subsidiary of Wise Payments Ltd. Wise Assets UK Ltd is authorised and regulated by the Financial Conduct Authority with registration number 839689. When facilitating access to Wise investment products, Wise Payments Ltd acts as an Introducer Appointed Representative of Wise Assets UK Ltd. Please be aware that we do not offer investment advice, and you may be liable for taxes on any earnings. If you're uncertain, we urge you to seek professional advice. To find out more about the Funds, visit our website.
Sources:
Sources last checked: 21-Oct-2025
*Please see terms of use and product availability for your region or visit Wise fees and pricing for the most up to date pricing and fee information.
This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise Payments Limited or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.
We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.
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