A healthy cash reserve is a sign of a well-run agency.

But too much cash? It can make you sloppy.

We’ve seen this play out firsthand, at our own agencies and in conversations with founders. A strong balance sheet can lull teams into avoiding the hard decisions. And that comfort comes at a cost: shrinking margins, misaligned headcount, and a business that quietly starts to drift.

Here’s how to know when your reserve is a safety net, and when it’s become a crutch.

When Cash Hides Deeper Problems

On paper, everything looks great.
You’ve got six months of expenses sitting in the bank. Maybe more.

But sales slow down. Clients churn.

And instead of adjusting your team, tightening scope, or fixing pricing…

You wait.

You draw from the reserve.
You tell yourself you’re "weathering the storm."
You assume things will bounce back.

We've done this.

And in one instance, we burned through a large cash buffer to “protect the team” while revenue kept sliding. The hope was that deals would close soon. But by the time reality set in, we had burned months of runway without actually fixing the core problems.

That’s the risk. Cash doesn’t force urgency. It delays it.

A Safety Net Is Not an Excuse to Skip Math

One of the simplest ways to check the health of your reserve strategy is with a rolling cash flow forecast. During one tough period, we mapped out every invoice, every expected delay, and every payment in or out, down to the week. It was time-consuming, but it gave us clarity. We could see exactly how many days of runway we had. Some weeks: 150+ days. Other times: single digits.

That exercise made decision-making easier. Not fun, but easier.
It forced us to look at the financial reality, not just the emotional one.

How Much Cash Is Actually Enough?

There’s no perfect number. But here’s a general rule of thumb we use:

• Project-based: 3-6 months of expenses

• Retainer-based: 1-3 months of expenses

• Large prepaid deals: Separate account for funds

If you're holding more than 6 months of expenses and not planning any major investment, ask yourself why.

One client prepaid a full year of fees. Instead of treating it like profit, we split it out into a separate account and drew it down month by month because we knew that cash wasn’t ours yet. It was future work we still had to deliver.

When to Use Reserves (and When to Step Back)

Having reserves is a privilege.
Using them wisely is a skill.

If you’re dipping into reserves to:

• Cover temporary client delays

• Smooth over lumpy project revenue

• Make an intentional investment in growth

That’s what they’re for.

But if you’re drawing on cash month after month just to make payroll…
That’s not a strategy. That’s avoidance.

What To Do Instead

Here’s how to use cash reserves responsibly, without letting them become a trap:

1. Forecast cash flow, not just revenue

Map it out weekly or monthly. Know your runway. If you can’t see your financial future clearly, you’ll always wait too long to course-correct.

2. Separate savings from spendable cash

If a client prepays, hold the money separately. Reserves for working capital should be distinct from project delivery cash or tax obligations.

3. Decide in advance what reserves are for

Are they meant to cover 2–3 months of slow sales? Great. But define the limit, and the actions you’ll take when it’s hit. If you're still dipping in after that threshold, it’s time to make hard decisions.

4. Don’t confuse cash with performance

Your bank balance reflects the past. Your P&L, pricing, and margin structure determine the future. Use both to run the business, not just the number that feels most comforting.

The Takeaway

Cash should give you confidence, not cover for indecision.

A strong reserve is a sign of discipline. But discipline also means knowing when to act, even when your balance sheet says you're “safe.”

🎧 Want more on how we think about cash, forecasting, and reserve strategy? [Listen to the full episode here.]