There is not a simple answer to this question, nor a “one size fits all” answer for every business. Different factors come into play when determining what a company should hold in reserve. The size of reserve needed is often a function of external events such as economic cycles, industry cycles and consumer demand. Your business cycle, inventories, cash flow, insurance coverage, and access to capital and credit also come into play.
Your banker may be able to help you with this question. One of the positive aspects of a relationship with your bank is that your bank has a stake in the success of your business and wants you to succeed. Therefore, your banker is your ally and should know almost as much about your business as you do enabling them to offer you valuable ideas, insights and solutions.
