Your Cash in the Bank Isn't a Strategy — It's Just Sitting There

There's a particular feeling you get when your checking account clears $60,000. Feels like safety. Feels like you've done something right. I know that feeling. I chased it for years after 2008, and I was wrong about what it meant almost every time.

That number isn't a reserve. It isn't armor. It's money you haven't figured out what to do with yet, sitting somewhere that a slow month will eventually find it.

You don't have a cash reserve. You have a checking account.

The Anxiety Account: What You're Actually Doing When You Let Cash Pile Up

After 2008 I ran lean for years. Watched the balance. Thought I was being careful. What I was doing was refusing to make decisions — holding money instead of deploying it, telling myself that not spending was the same as being safe.

It isn't. Not spending is just a way of waiting for someone else to make the decision for you. And the business will always make that decision, given enough time. It's not deliberate about it. It just spends the money on whatever problem shows up next.

Cash without a specific purpose doesn't protect you. It sits in the most accessible place in your business — the same account you use to buy copper and pay diesel — and it fills whatever gap opens up. Not the gap you planned for. The one that showed up on a Tuesday.

A real reserve has a specific dollar figure behind it. One you calculated from your actual outflow, not a feeling. It has a rule about what triggers a withdrawal. And it lives somewhere that isn't your operating account, because the moment it shares a home with operating cash, it loses every argument with a slow Friday.

Everything above that specific number isn't a reserve. It's money waiting to get spent on the wrong thing.

The 90-Day Rule Is the Only Number That Matters

One question. How long can you pay your guys, your truck notes, and your rent if no new revenue comes in starting Monday?

Not in dollars. In days.

When I laid off four men in October 2008, I had a checking account balance I wasn't panicking about. What I didn't have was 30 days of real runway. I had receivables stretched to 110 days and a balance that looked healthier than it was because I hadn't done the outflow math. I'd been watching the wrong number. The account told me one story. The burn rate told me another.

Here's how to get the right number. Pull your actual weekly payroll — what you cut every week to keep your guys working. Add your fixed monthly overhead: truck notes, insurance, shop rent, whatever subscriptions you're actually using. Divide the monthly total by 4.3 to get it weekly. Add a rough average of emergency material exposure — what a bad week of service calls costs you in parts. That's your weekly burn.

Multiply by 13. Write it down.

That's your 90-day floor. If your checking account balance doesn't cover it, you don't have a reserve. You have a runway, and you might not know how short it is.

Ninety days is the amount of time a small shop needs to lose its biggest client, run dry on new leads, deal with a major equipment failure, and still make decisions from a position of choice instead of panic. Under 30 days, you're in survival mode before anything bad has even happened.

The account balance the week before I laid those four men off hadn't warned me. I knew their names, knew which ones were buying houses. If I'd been running 13-week math on a regular basis, I'd have had a different conversation two months earlier — with more options and less damage. I didn't have those options because I wasn't watching the right number.

Idle Cash Has a Price — You're Just Not Seeing the Invoice

Most contractors think leaving cash in the account is the conservative play. It isn't. It's an expensive habit and nobody sends you a bill for it, which is the only reason you don't notice.

If you're carrying $40,000 in your business checking and also making monthly payments on equipment at 8 or 9 percent interest, you are paying the bank to hold your own money while also paying the bank for debt you could reduce. I did exactly this for longer than I should have after the rebuild years. There's no defense for it.

Idle cash above your reserve floor costs you: interest accruing on debt you could pay down, rent on equipment you could own, and distributions you're not taking while the IRS still gets its cut of the profit regardless. The government doesn't care that the money felt safer in the account. They tax the profit.

I've heard guys told to "keep 20% of revenue liquid." That's wrong for most shops my readers actually run. Twenty percent of revenue means something completely different for a three-man shop doing $400,000 with one truck note than for a six-man shop doing $400,000 with four trucks and a shop lease. The formula doesn't know your burn rate. It doesn't know what your slow season looks like. My son's in Tampa; I know firsthand that a Worcester winter and a Tampa slow season are two entirely different math problems. Twenty percent is a starting point somebody turned into a final answer.

Your reserve number comes from your outflow, not a formula someone else built.

What Happened When the Account Looked Fine and Everything Wasn't

October 2008. I had two builder accounts — real volume, reliable work, the kind that fills the schedule three months out. Both gone in the same week. I sat at my kitchen table with the bank statement in front of me doing arithmetic I should have done six months earlier.

The balance looked like a cushion. When I ran the outflow math against it, it was a countdown. I could see, almost to the day, when payroll became impossible. I had good money on the books — real invoices for real work. But at 110 days outstanding, that AR wasn't an asset. Money owed isn't money. Shops go to zero looking at their total AR and feeling okay, right up until there's nothing left to make payroll with.

I didn't have the options I needed — fewer guys rather than four gone, reduced hours, maybe a call to another shop about temporary work — because I wasn't watching the right number soon enough. I didn't make that mistake again.

What Your Cash Above the Reserve Number Should Be Doing

Once you know your 90-day floor, everything above it needs an assignment within 60 days. If you don't give it one, the business will spend it on something stupid. That's not a prediction. It's just what happens.

Pay down high-cost debt first. List your notes with the interest rate next to each one. The most expensive is the first target. I had a rule through the rebuild years: if I was paying monthly on anything and had idle cash above my reserve floor, that note was the first conversation. I retired the last payment on my 2003 truck in 2011, kept it running until I sold to Reliant in 2018. Bought it outright after the rebuild. That felt a hell of a lot better than a high checking account balance.

Buy equipment you're renting repeatedly or financing expensively. If you're renting something more than three or four times a year, the math almost always says buy it. Same logic applies to anything financed at a rate higher than what you'd earn putting the money anywhere else.

Take the distribution. Too many small shop owners pay everyone else on time and pay themselves whatever's left, which is often nothing. Then they wonder why they resent the business after ten years. A real distribution, scheduled, calculated after the reserve floor is met — that's not irresponsible, that's what the business exists for. Put it on the calendar. Write the check.

Cash above the reserve floor that doesn't have one of those three assignments isn't doing anything. It's waiting for a slow stretch to eat it.

What to Do Monday Morning

Pull three months of bank statements. Not what you think you spend — what you actually spent. Add up payroll, truck notes, insurance, supply house runs. Get a real weekly outflow figure. Multiply by 13. Write it on paper.

That number is the floor. It lives in a separate account — same bank is fine, but a different account number. Name it something that sounds like infrastructure. "Smith Mechanical Reserve" or just "Operating Reserve." The friction of having to move money deliberately is the entire point of the separate account. Same-account reserves disappear. I've watched it happen.

Everything in your checking account above the floor needs an assignment. Not by end of quarter. By Friday.

Three places it can go: the reserve account until it's funded, debt reduction starting from the highest rate, or a scheduled owner draw. That's the whole list.

The math takes 45 minutes with a bank statement and a calculator. That's it.

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A Few Questions I Get

I've got $80,000 in my business checking right now. How do I know if that's too much, too little, or about right?

Run the 90-day math. Take your actual weekly outflow and multiply by 13. If that number is $55,000, you've got $25,000 above the floor that needs an assignment. If that number is $95,000, you're underfunded and $80,000 feels safer than it is. The balance in the account isn't the answer. The gap between that balance and your burn rate is.

What counts as part of my 90-day reserve — should I include what customers owe me?

Cash in the bank only. Receivables are not reserves. A customer at 75 days who hasn't returned two calls is not an asset for this calculation. Count what's in the account. Be conservative.

Is there ever a reason to invest excess cash instead of paying down equipment debt?

Narrow window. Most small shop equipment debt runs 7 to 11 percent. Nothing your accountant is going to suggest will reliably beat a guaranteed return of canceled interest at that rate. Pay the debt first.

I'm a two-truck shop. Do I really need a separate savings account?

Yes. I talked to a guy last year — one truck out of service, slow February, suddenly behind on payroll — who told me he definitely had a reserve. He had a checking account that looked fine in December. Opening a separate account costs nothing. Not having one will.

My slow season wipes out whatever I've saved every year. How do I build a reserve when the business keeps needing it?

The slow season is part of your operating model. Budget it explicitly. In the busy months — late spring through early fall for most residential shops in the Northeast — a cut of every deposit goes to the reserve account before it hits operating. Not what's left over. Off the top. If you're starting every March at zero, the busy season isn't being managed. It's just being spent.

When does holding more than 90 days make sense?

When you've assigned it a job. Buying a significant piece of equipment outright in the next six months. Funding material staging on a large commercial job yourself. A slow season that legitimately runs longer than 90 days in your market, with the math to back it up. Any of those is fine. A checking account that keeps growing because you haven't decided what to do with it isn't a strategy. It's a decision you're postponing until the business makes it for you.