What is a cash buffer?
Cash buffer (cash reserve): Money you keep for bad weeks and surprises, often counted in weeks of fixed costs.
Buffer = fixed costs per month / 4 x weeks you want to keep
Example
A hair salon's fixed costs are $2,400 a month, $600 a week. A buffer of 6 weeks of fixed costs is $600 x 6 = $3,600.
Made-up people and numbers from the cases of our course; the math is real.
A common mistake
Counting months instead of weeks: 6 months of fixed costs would be $14,400.
Try it with your own numbers: Cash runway calculator (free, no sign-up).
Practise this in block 1
Block 1 of Ownwise is free, with no account needed to start: short lessons on costs, margin and break-even, then a made-up case where you make the decisions. This term has its own lessons in block 3, part of the paid practice pack.