Quick answer
To set up a cash buffer, total your unavoidable weekly costs (wages, super, rent, loan repayments, key suppliers), multiply by the number of weeks a bad patch could realistically last, usually four to twelve, and hold that sum in a separate at-call account. Fill it with a fixed slice of every deposit, keep tax money out of it, and agree in advance when you can draw on it and how fast you'll rebuild.
Key points
- Size the buffer on unavoidable costs per week, not on revenue or a round number
- Since 1 July 2026, Payday Super means super leaves the account within days of each pay run, so the buffer must carry it too
- Keep GST, PAYG withholding and super in a separate holding account: that money was never yours to buffer with
- Most major banks ask for 31 days' notice to break a term deposit early, so the first layer of a buffer belongs at call
- A standby line of credit, arranged while trading is good, is a second layer, not a substitute for cash
Ask ten owners how much cash they keep in reserve and you’ll hear ten numbers, most of them guesses. A useful buffer isn’t a feeling about having “enough”. It’s a figure you can calculate in an afternoon, hold in a particular place and refill by rule.
The short version: work out what the business must pay each week no matter what, decide how many weeks of that you want covered, and park the total somewhere you can reach today but won’t spend by accident. The rest of this guide shows how to do each step properly, and what has changed in 2026 that makes the old rules of thumb too thin.
Why do businesses with healthy sales still need a buffer?
Because sales and cash arrive on different timetables. You can book a record month and still be short on payday if customers pay on 30 or 60 days, a big supplier invoice lands early, or the bank holds a large deposit for clearance. Profit is an accounting result. Cash is what clears the wages.
A buffer smooths three kinds of shock:
- Timing gaps: money owed to you is real but late.
- Revenue dips: a quiet month, a lost contract, a wet fortnight for an outdoor trade.
- Lumpy costs: an equipment breakdown, an insurance renewal, a quarterly tax bill that is bigger than expected.
Without one, each shock becomes an urgent decision: delay a supplier, skip your own pay, or borrow at short notice. With one, it becomes a transfer.
How big should the buffer be?
Start with costs, not turnover. A business turning over $2m with thin margins can need a bigger buffer than one turning over $800k with high margins and cash customers.
Step 1: list the costs that can’t stop
Go through the last three months of bank statements and pull out everything you’d still have to pay in a month with zero sales:
| Cost | Why it stays |
|---|---|
| Wages and super | Staff are paid whether customers buy or not |
| Rent and outgoings | Lease obligations continue |
| Loan and equipment repayments | Missed payments create defaults |
| Insurance, software, phones | Usually direct debits |
| Core supplier accounts | The ones you can’t trade without |
| Your own minimum drawings | Your household still has bills |
Leave out stock you could stop ordering, marketing you could pause and anything else genuinely optional.
Step 2: convert to a weekly figure
Add it up for a typical month, multiply by 12 and divide by 52. That’s your weekly burn: the amount the business consumes each week just by existing.
Step 3: choose the number of weeks
There’s no official standard here, but the right number of weeks depends on how bumpy your income is.
| Business profile | Weeks of cover to aim for |
|---|---|
| Cash or card customers, steady demand (cafés, hair salons) | 4 to 6 |
| Mostly invoiced customers on 30-day terms | 6 to 8 |
| Seasonal, project-based or one big customer | 8 to 12 |
| Construction, progress payments, long retentions | 12 or more |
Multiply the weekly burn by the weeks you’ve chosen. That’s the target. Our cash runway calculator does the arithmetic for you and shows how long current cash would last at today’s spending.
What changed in 2026 that affects the size?
Two rule changes make a buffer more valuable than it was a couple of years ago.
Super now leaves with every pay run. Since 1 July 2026, employers have had to get super into employees’ funds within seven business days of each payday under the ATO’s Payday Super rules, rather than up to four weeks after the quarter ends. For many employers that used to mean holding super for weeks before paying it, which quietly acted as a float. That float has gone. If your buffer target was set before July 2026, add super to the weekly burn and recalculate. Our guide to super guarantee obligations and cash flow covers the mechanics.
Borrowing from the ATO got dearer. From 1 July 2025, the general interest charge on late tax is no longer tax-deductible. Running behind on BAS used to be an expensive, informal buffer; after tax, it’s now more expensive still. A modest cash reserve that keeps lodgements and payments on time is cheaper than the interest you’d otherwise carry.
Not sure your numbers add up? A short conversation with our team can show what backup finance would be on offer if the buffer ever ran dry.
Where should you keep the money?
Location matters as much as size. The buffer has to be reachable within a day, separate enough that it doesn’t get spent on ordinary bills, and ideally earning something.
Layer one: at-call business savings
Keep at least one month of unavoidable costs in a business savings account linked to your transaction account. You can move it in seconds through online banking, yet it doesn’t show in the balance you glance at when deciding whether to order stock.
Layer two: short-term deposits, with care
If your target is well above a month, the extra can earn more in a term deposit. Know the trade-off: most major Australian banks ask for 31 days’ notice to break a term deposit early and cut the interest paid on the amount withdrawn. That makes term deposits a poor home for money you might need next week, but reasonable for the back half of a 12-week reserve.
Not in the tax account
Hold GST, PAYG withholding and super in a separate tax holding account. That money is already spoken for. A buffer that includes it is an illusion, and it tends to vanish just before BAS is due. Our guide to GST cash flow tips for small business explains the set-aside approach.
How do you fill it without starving the business?
Few owners have twelve weeks of costs sitting idle. Build towards the target gradually.
- Pick a percentage of every deposit. Something between 3% and 10% of money received, transferred weekly. Small enough to live with, regular enough to add up.
- Automate the transfer. A scheduled payment every Monday removes the decision.
- Send windfalls straight in. A tax refund, an insurance payout or an unusually good month goes to the buffer first.
- Track progress in weeks, not dollars. “We’re at five weeks of cover” is easier to understand than a balance figure, and it adjusts automatically if costs rise.
A business with a weekly burn of $18k and a target of eight weeks needs $144k. Transferring 5% of $40k weekly receipts puts aside $2k a week, which reaches target in a little over 18 months, faster with windfalls. That’s a realistic pace for most owners.
When are you allowed to touch it?
Write the rules down before the bad month arrives. It’s far easier to decide calmly in advance than under pressure.
Good reasons to draw:
- Wages, super or tax due and receipts are late
- A critical piece of equipment fails
- A known seasonal trough
Poor reasons to draw:
- A stock bargain or expansion opportunity (those are better funded with finance matched to the purpose)
- Owner bonuses or distributions
- Covering a loss that is clearly structural rather than temporary
That last one deserves emphasis. A buffer buys time. If three months of losses are a sign that prices are too low or costs too high, the buffer only delays the decision. Our guide on how to plan for a quiet month helps separate the two.
The rebuild rule
Most owners set up a buffer and forget to plan its refill. Decide now: after any draw, the weekly transfer doubles until the balance is back to target, and no discretionary spending happens until it is. Without that rule, a buffer used once tends to stay half-empty.
Should you add a standby facility as well?
A cash buffer and a borrowing facility work best together. Cash covers the first weeks of a shortfall at no cost. A business line of credit or overdraft covers anything beyond that.
Timing is the catch. Lenders are most willing to approve a facility when your statements look strong: steady balances, no dishonours, tax up to date. Wait until the buffer is empty and you’re applying from a weaker position. Many owners arrange a modest limit during a good quarter and leave it undrawn, paying only the line fee.
Banks are a natural first stop for this. If your bank offers an overdraft at reasonable terms, take it seriously. Where it doesn’t fit, non-bank lenders offer unsecured lines sized on turnover and bank statements. For a bigger shortfall, especially when payroll is days away, our page on when payroll is due and cash is short lays out the options.
A worked example: a physiotherapy clinic in Townsville
This is an illustrative example, not a client.
A two-location physio practice turns over about $1.6m a year. Most revenue comes through health fund claims and private payments on the day, but a growing share is NDIS and workers’ compensation work paid on invoice.
Unavoidable monthly costs:
| Item | Monthly |
|---|---|
| Wages for eight staff | $72k |
| Super (now paid each fortnight) | $8.6k |
| Rent at both sites | $11k |
| Equipment finance | $3.2k |
| Software, insurance, phones | $2.4k |
| Owner’s minimum drawings | $7k |
| Total | $104.2k |
Weekly burn: $104.2k × 12 ÷ 52 ≈ $24k.
Because about a third of revenue is invoiced and can arrive late, the owner picks eight weeks of cover: roughly $192k.
How it’s held:
- $100k at call in a business savings account (about four weeks)
- $92k in a three-month term deposit, rolled over each quarter
- GST and PAYG withholding in a separate tax account, not counted
How it’s filled: 6% of every deposit moves to savings each Monday. After an insurance refund and two strong months, the clinic reaches the target in about 14 months.
How it’s backed up: while the buffer was building, the owner arranged a $60k business overdraft with the bank, undrawn, as a safety net. When a major insurer later took 70 days to pay a batch of claims, the clinic drew $45k from savings, never touched the overdraft, and doubled the weekly transfer until the reserve was full again.
Mistakes that weaken a buffer
- Counting tax money as reserves. The balance looks healthy until BAS arrives.
- Setting the target once. Costs rise with wage increases, new staff and rent reviews. Re-run the numbers each year, or whenever headcount changes.
- Keeping it all in a term deposit. Thirty-one days’ notice is a long time when wages are due on Thursday.
- Using it for opportunities. Growth deserves its own funding plan; the buffer is for defence.
- No rebuild rule. One draw, no refill, and the buffer quietly disappears.
For a broader look at managing the cycle of money in and out, see working capital in our glossary, and use the cash flow gap calculator to measure how far apart your receipts and payments really are.
When the buffer isn’t big enough yet
Building a reserve takes months, and a shortfall rarely waits politely until you’re ready. If a gap has arrived before your buffer has, finance can bridge it while the reserve catches up, and choosing the right type now is easier than choosing it in a panic.
You can find out what’s available in about a minute. Asking us costs nothing in credit terms: there’s no check on your file just for enquiring. Your details stay with us rather than being forwarded to a long list of lenders, so you won’t be fielding calls from strangers. One of our specialists reads what you’ve written and rings you to talk it through. The more accurately you describe your turnover, costs and timing, the more likely the first option we suggest is the right one.
Frequently asked questions
How much cash should a small business keep in reserve?
A common working target is enough to cover four to twelve weeks of unavoidable costs: wages and super, rent, loan repayments, insurance and the suppliers you can't trade without. Businesses with lumpy income, long debtor days or one big customer should sit at the higher end. Steady, cash-paid businesses can sit lower.
Should my cash buffer be in a term deposit?
Not the first layer. Most major Australian banks require around 31 days' notice to withdraw a term deposit early and reduce the interest paid. Keep at least a month of costs in an at-call business savings account. A second, larger layer can sit in a short term deposit if you're comfortable with the notice period.
Is money set aside for GST part of my cash buffer?
No. GST collected, PAYG withheld from wages and employee super belong to the ATO and your staff. Hold them in their own account and treat the buffer as money on top of those obligations. Counting tax money as a buffer is how many businesses end up with an ATO debt.
Can a line of credit replace a cash buffer?
It can support one, not replace it. A line of credit costs money while drawn, can be reduced or cancelled by the lender, and is harder to get once trading has already dipped. Many owners use cash for the first few weeks of a shortfall and the facility for anything beyond that.
How quickly should I rebuild the buffer after using it?
Set the rule before you need it. A practical approach is to lift the percentage of receipts you transfer, for example from 5% to 10%, until the buffer is back to target, and to delay discretionary spending such as owner bonuses until it is.
Do lenders care whether I keep a cash buffer?
Yes. A steady positive balance and few dishonours on your bank statements are among the first things an assessor looks at. A business that holds reserves and rarely dips into overdraft usually reads as lower risk, which can help on approval and on the terms offered.