Short answer: size your cash buffer to cover at least two to three months of fixed costs plus your largest realistic surprise, then build it from working capital first (collections, payment terms, inventory), spending discipline second and financing third. Track it every week with a 13-week cash flow forecast.
Why smaller companies are feeling it more
The third-quarter 2026 Richmond Fed CFO Survey found that optimism rose among large companies but fell among small and financially constrained ones. Many firms without investment plans said they were preserving cash, and among companies that said financing held them back, more than half said it kept them from pursuing new opportunities.
Larger companies have cash, credit lines and pricing power to absorb rising wages, insurance and supplier costs. Smaller companies feel each increase sooner. A cash buffer is what lets you keep making good decisions instead of forced ones.
How big should your buffer be?
There is no single right number, but a practical starting point is:
- Two to three months of fixed costs (payroll, rent, debt service, core software), plus
- Your largest realistic surprise, such as losing your biggest customer, a large receivable paying 60 days late, or a seasonal low point.
Venture-backed companies should think in terms of runway instead: at least 12 to 18 months of cash at the current burn rate, with a plan for what changes if the next round takes longer.
Where to find the cash
1. Working capital
- Invoice the same day work is delivered, and automate reminders.
- Review payment terms for large customers and require deposits on big projects.
- Negotiate longer terms with suppliers where relationships allow.
- Reduce slow-moving inventory and tie purchasing to real demand.
2. Spending discipline
- Review software subscriptions and vendor contracts; consolidate overlapping tools.
- Phase hiring against revenue milestones rather than calendar dates.
- Separate investments that drive growth from costs that just accumulated.
3. Financing, before you need it
Put a line of credit in place while results are strong. Lenders are far more flexible with a company that does not urgently need the money.
Make it visible every week
A buffer only works if leaders can see it. A rolling 13-week cash flow forecast shows the low point weeks in advance, so you can act early. Review it weekly with the leadership team.
Frequently asked questions
Is holding extra cash a waste of capital?
Not when uncertainty is high. The cost of holding a modest buffer is small compared with the cost of a forced decision, an expensive emergency loan or a missed opportunity.
What is the fastest way to free up cash?
Usually collections: billing faster, following up consistently and fixing the reasons customers pay late.
How often should we review our cash position?
Weekly, with a forward-looking forecast, not just today's bank balance.
Need help building your buffer? See how we solve cash flow problems or talk with our CFO team.