Contingency and reserves

Money held back for the thing you did not plan for.

What it means

A cash reserve is money held for unexpected costs or a downturn. In project pricing, contingency is an allowance for risk within a quote.

Why it matters

Businesses without a reserve are one bad month from a crisis, and the cheapest funding is money you already have.

What it looks like in practice

Three months of fixed costs is a common target and is aspirational for many small businesses. One month is a real improvement on none.\n\nOn projects, price contingency explicitly rather than absorbing it in margin.

What to watch out for

Reserves held in the current account and spent without a decision. Move them.\n\nAnd contingency that is really a hidden discount, given away in negotiation.

Where to get proper advice

Your accountant, who can produce most of these from data they already hold.