How Much Should You Keep in the Business Bank Account?
It’s one of the most common questions we hear from business owners and one of the least talked about.
You’re doing well. Money is coming in, invoices are going out, and the balance in your business bank account is looking healthier than it used to. So you start to wonder: is this the right amount to have sitting here? Should I be investing it? Drawing more out? Holding back more?
The honest answer is: it depends. But there are some clear principles that make the decision a lot less stressful and a lot more intentional.
Why This Question Matters More When You’re Growing
When you’re small, cash management is fairly simple. When you’re scaling, it gets more complex, fast.
You’ve got payroll to meet. Tax deadlines that land at irregular intervals. Software, subscriptions, and overheads that tick away every month. Possibly a growth investment on the horizon: a new hire, a new tool, a new space.
Holding too little means you’re one slow month away from a problem. Holding too much means money that could be working harder for you is sitting idle. Neither is ‘good’.
The goal is intentional cash management; knowing what you’re holding, why you’re holding it, and what it’s earmarked for.
The Foundation: Your Operating Float
The starting point for most businesses is to hold enough to cover one to three months of operating expenses.
This is your buffer, the cash that keeps the lights on if a client pays late, a contract ends unexpectedly, or you have an unusually quiet period. It’s not profit. It’s not savings. It’s your operational safety net.
To work out what this looks like for your business, add up your regular monthly outgoings: payroll, rent or premises costs, software, insurance, professional fees, and anything else that goes out regardless of how much comes in. Then multiply by however many months of cover you want to hold.
One month is a minimum. Three months is more comfortable for most scaling businesses. The right number for you depends on how predictable your income is and how quickly you could cut costs or bring in cash if you needed to.
Layer Two: Tax Reserves
Tax is not an expense, it’s a liability that builds up over time and lands in one go. Treating it as an expense you’ll deal with later is one of the most expensive mistakes a growing director can make.
Here’s what to set aside each month:
VAT: If you’re VAT-registered, this isn’t your money. Set it aside as soon as you collect it. A separate account or pot makes this much easier to manage.
PAYE and employer’s NI: These are payroll obligations. They should be accounted for before you consider the business’s ‘available’ cash.
Corporation Tax: Work with your accountant or bookkeeper to estimate your annual liability and divide it by 12. Move that amount somewhere separate each month.
When tax is reserved monthly, the bill becomes unremarkable. When it isn’t, it’s a crisis.
Layer Three: Growth and Investment Reserves
If you’re planning to hire, invest in systems, upgrade your premises, or launch something new in the next 12 months, you need a pot for that too.
This isn’t about hoarding cash indefinitely. It’s about making sure that when you’re ready to invest, the money is already there, rather than scrambling to find it or taking on debt to fund growth you could have planned for.
Decide what your next significant investment is likely to be, estimate the cost, and work backwards to a monthly saving target.
So, What’s the Number?
There’s no universal answer, but a practical framework for most scaling service businesses looks something like this:
Operating float: 1-3 months of fixed overheads
VAT reserve: 100% of collected VAT, held separately
Corporation Tax reserve: ~20–25% of monthly net profit (adjust based on your accountant’s advice)
PAYE/NI reserve: Full payroll liability for the upcoming period
Growth pot: Whatever your next investment requires, divided across the months until you need it
Everything above that is genuinely available cash; for dividends, director’s loans, or further reinvestment.
The Practical Bit: Use Multiple Accounts
The simplest way to make this work in practice is to use separate accounts or spaces for each reserve.
Many business bank accounts now allow you to create savings spaces or sub-accounts within the same platform. Set them up, name them clearly (Tax, Payroll, Growth), and move money into them as part of your monthly routine.
When tax is in one pot and growth funds are in another, your ‘available’ balance becomes an honest number and decision-making gets a lot clearer.
Not Sure How to Set This Up?
This is exactly the kind of structure that a good bookkeeper can help you build. Not just the tracking, but the habits and systems that make it automatic.
At LJM Bookkeeping, we help scaling directors get clear on their cash position, so the numbers in your account mean something, and the decisions you make from them are ones you can be confident in.
Get in touch if you’d like to talk it through.
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