A 90-day cash reserve is enough money set aside to run the practice for three months with no help from new revenue. Size it from your real monthly costs, keep it in a separate savings account, and build it with a fixed deposit every month until it's full.
Why 90 days
A membership practice has steady revenue, which is a big advantage. It also has steady costs that don't stop when something goes wrong. A provider out sick, a payment processor holding deposits, a slow enrollment season, a big repair. Three months of costs set aside means one bad month is an inconvenience, not a crisis.
How to size it
Start with your last three months of bank statements. Add up everything that went out for the practice each month: rent, payroll and payroll taxes, software, supplies, labs, insurance and loan payments. Leave out one-time purchases. Include a modest amount of owner pay, enough for you to live on.
Take the average month and multiply by three.
In a made-up example, the average month costs $28,000 including a base owner payment. The reserve target is $84,000. That's a big number, which is why you build it over time.
Where to keep it
In a separate business savings account at the same bank, so you can move money in a day if you need it. Not in checking, where it blends in and gets spent. Not invested in anything that can lose value or take a week to sell.
Give the account a name that tells you what it's for, like Reserve. It sounds small, but it works.
How to build it
Pick a fixed monthly deposit you can keep up, and move it on the same day each month, right after your bills. In the example, $3,500 a month reaches $84,000 in two years. $7,000 a month gets there in one.
The reserve comes before extra owner pay. Once it's full, that monthly deposit can become owner pay. This post walks through that order.
When to use it
The reserve is for real shortfalls, not for opportunities. If you dip into it, set a plan to refill it, even at a smaller monthly amount. If you're using it every month, the problem isn't the reserve. It's the gap between revenue and costs, and that needs its own fix.
What I'd do this week
- Add up your average monthly costs from the last three months.
- Open a separate savings account and name it Reserve.
- Set an automatic monthly transfer, even a small one, and start it this month.
- Check how many months of runway you have today.
Common questions
Should I build the reserve before paying myself more?
I would. A full reserve is what lets you pay yourself steadily without worrying about a slow month.
Does the reserve count toward my tax savings?
No. Keep tax money in its own account. Tax payments are bills you know are coming, and the reserve is for the ones you don't.
Is three months always right?
It's a solid target for most practices. If revenue is less predictable, or you carry large loan payments, you might want more.
Want to know your real monthly costs?
We close your books every month and send your P&L and Balance Sheet by the 15th, so sizing your reserve starts from real numbers. If that's what you need, apply to work with us.