
I came across an article recently suggesting that businesses should maintain a 90-day cash flow buffer. In theory, that sounds like solid advice—three months’ worth of expenses set aside, just in case. But in practice? Especially in an economy like South Africa’s? That feels like a luxury most businesses can’t afford.
Let’s be honest: there is no growth in the economy. Retailers are fighting tooth and nail. Small businesses are battling every month just to stay afloat. Sure, money is still moving, and there are opportunities out there—but how many entrepreneurs can afford to have 90 days’ worth of operating cash just sitting in a bank account, earning almost nothing?
For most small businesses, it’s a hand-to-mouth cycle:
Buy stock.
Sell stock.
Use that money to buy more stock.
Cover rent, staff, and a few basic overheads.
Repeat.
So how does one even begin to build up a 90-day buffer? And more importantly, is 90 days a reasonable target—or just a pipe dream?
The Realities of a Cash Buffer
The ideal buffer will always depend on:
• The type of business you run.
• Your monthly burn rate (i.e., fixed expenses).
• Your appetite for risk as a business owner.
Some industries—like seasonal tourism or manufacturing—might benefit from a longer buffer. Others, like day-to-day retail or food service, might survive on less.
Even a 30-day buffer would be a step up for many businesses. But let’s be clear about definitions here:
What Does a “90-Day Cash Flow Buffer” Really Mean?
A 90-day cash flow buffer means your business has enough liquid cash to cover 90 days’ worth of operating expenses—without relying on incoming revenue.
These expenses typically include:
• Salaries and wages
• Rent and utilities
• Supplier payments
• Loan repayments
• Insurance
• Other overheads
It’s not based on free cash flow, per se. Free cash flow is the cash left over after all operational expenses and capital expenditures have been paid. It’s more a profitability metric. A buffer is more about liquidity—your ability to keep paying the bills even when your income dries up.
So, the buffer calculation is based on actual cash outflows, after tax, not before. That’s what matters when the bills are due.
Free cash flow, by the way, is the unencumbered cash your business generates after all operating expenses and capital investments have been paid. It’s often used for growth, dividends, or debt reduction—but it’s not what a buffer is based on.
So, What’s a Reasonable Buffer?
If 90 days seems too high, start small. A 15-day or 30-day buffer is better than nothing. Build it over time. Add a small percentage of each month’s net income to a dedicated buffer account. Review your expenses. Cut unnecessary costs. Treat that buffer like a non-negotiable.
Even having a two-week buffer can buy you time, reduce stress, and help you make better decisions when unexpected things happen.
Final Thoughts
Cash flow is the lifeblood of your business. Without it, even profitable businesses can go under. In a down market, your ability to survive often depends not on how much you’re earning, but how long you can operate when the money stops flowing.
So, take a moment this week to look at your cash flow. How long could your business run if your income stopped today?
What buffer do you need to sleep better at night?