The Importance of Cash Reserves After Buying a Business

When I close on a business, one of the first financial disciplines I prioritize is building cash reserves. Over the years, I’ve learned that reserves are the safety net that protects acquisitions from the unexpected. No matter how strong the financials look, surprises always come equipment failures, customer churn, vendor price increases, or economic downturns. Without cash reserves, even profitable businesses can run into liquidity crises.

Why Cash Reserves Matter

Cash reserves matter because they:

• Provide stability during revenue dips
• Cover unexpected expenses without debt
• Strengthen lender and vendor confidence
• Allow me to seize opportunities quickly
• Reduce stress by creating financial breathing room

In short, reserves buy time, and time often makes the difference between survival and failure.

My Early Mistakes

In one acquisition, I reinvested every dollar into growth without setting aside reserves. When a major customer delayed payment, payroll became a crisis. I had to inject personal funds.

In another case, I assumed a line of credit would cover emergencies. Instead, the lender tightened terms during a downturn, leaving me exposed.

Both mistakes reinforced that reserves aren’t optional; they’re essential.

How I Decide Reserve Levels

When I buy a business, I calculate reserves based on:

• Fixed Expenses: I aim for at least three to six months of payroll, rent, and debt service.
• Revenue Volatility: The more seasonal or unpredictable the business, the larger the buffer.
• Industry Risk: Highly cyclical industries require bigger reserves.
• Growth Plans: If I plan rapid scaling, reserves need to be stronger.

How I Build Reserves Post-Acquisition

I typically:

• Allocate a percentage of profits monthly to a reserve account
• Avoid draining all cash for distributions or reinvestment
• Use conservative budgeting to maintain liquidity
• Replenish reserves quickly after drawing them down

Reserves become a non-negotiable part of financial discipline.

Why Reserves Strengthen Transferable Value

Businesses with solid reserves are more attractive to buyers and lenders. They’re less risky, more stable, and able to survive downturns. That stability translates into higher valuations.

Final Thoughts

I’ve learned that cash reserves are one of the simplest but most powerful tools in acquisitions. They protect against risk, build resilience, and create opportunity.

That’s why I always build and maintain reserves after buying a business. Because no matter how strong a company looks on paper, real life always brings surprises, and reserves make sure I’m ready.

I continue sharing my acquisition frameworks and financial strategies at DrConnorRobertson.com, where I document the disciplines that keep small businesses strong.