Emergency Cash Reserve for Your Business: How Many Months of Runway Do You Actually Need?

What "Three Months of Runway" Actually Means#

Runway is how long your business can survive if all revenue stopped tomorrow. It's calculated from your monthly "burn rate" — your total monthly cash outflows including fixed costs, variable costs at current revenue levels, and debt repayments. If your monthly outflows are £22,000 and you have £66,000 in cash, you have three months of runway. The question is whether three months is enough. Enough to find a new major client if you lose your biggest one? Enough to survive a forced closure of two months? Enough to wait out a slow season without desperate pricing? Three months is the minimum. Six months is resilience.

Calculating Your Monthly Burn Rate#

Pull your last 12 months of cash outflows from Xero. Total them and divide by 12 — that's your average monthly burn. But also calculate your peak burn month: the month with the highest outflows (often when quarterly tax, rent review increase, and a large supplier invoice coincide). Your reserve needs to cover peak burn months, not average ones. If your average burn is £18,000 but your peak month is £26,000, size your reserve to the peak — not the average. AskBiz calculates both numbers automatically from your Xero transaction data.

Building the Reserve Without Starving the Business#

Building a six-month reserve from zero while running a cash-constrained SMB feels impossible. The practical approach: treat it like a subscription. Set a fixed monthly transfer to your reserve account — £500, £1,000, whatever the business can sustain — and automate it. It will take two to three years to build a full six-month reserve this way. That's fine. Starting is the point. The business that started building its reserve three years ago and has three months of runway today is in a radically better position than the business that planned to "build a reserve when things get easier" and still has nothing.

What the Reserve Is and Isn't For#

The emergency reserve is for genuine business disruptions: a key client going bust owing you money, a forced closure, equipment failure that stops trading, or a personal health event that prevents you working. It is not for covering operating costs because margins are too thin, funding growth investments, or bridging late-paying clients (that's what a revolving credit facility is for). Mixing the reserve with working capital means you never actually have a reserve — it's always been partially consumed by the last three "emergencies" that were actually predictable cash flow events.

• The standard advice is "three months of operating costs" as a business emergency reserve.
• For most SMBs with lumpy revenue and seasonal swings, three months is the minimum — six months is better.
• A retail shop spending £18,000/month in fixed and semi-fixed costs needs £54,000–£108,000 in reserve to survive a serious disruption without emergency borrowing.