Cash Reserve
A cash reserve is money set aside to pay your fixed costs through a quiet stretch you expect. Cash flow is different: it is the everyday gap between money earned and money banked.
What it means
Cash flow describes a gap that opens and closes each month as invoices go out and get paid. A cash reserve is a stockpile you build on purpose for a known quiet stretch, most often a seasonal dip. It keeps your fixed costs paid in a month that brings in little or no income.
You build the reserve during the busy months, a share at a time. You do not find it all at once when the quiet month arrives. Size it against your fixed costs and the length of your own quiet stretch. A predictable dip then becomes a gap you have already paid for.
A business has $1,800 a month in fixed costs and a three-month quiet stretch. It needs roughly $5,400 set aside to clear the whole dip. Saving $675 a month across the eight busy months gets there before the quiet stretch starts.
Confusing a cash reserve with cash flow, and assuming a profitable busy season will cover the quiet months. The reserve is a separate stockpile. Being busy does not build it.
See also
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