How Much Cash Reserve Should Your School Keep?

Most financially healthy schools keep three to six months of fixed operating costs — rent, payroll, insurance, and other bills that don’t disappear if enrollment dips — in a separate cash reserve, not three to six months of gross revenue. Confusing the two numbers is why some owners believe they’re better cushioned than they actually are.

Why Schools Without a Reserve Get Forced Into Bad Decisions

A school running with no cash buffer has to react to every slow month or unexpected expense (a broken HVAC unit, a slow enrollment stretch, a late-paying corporate account) with whatever’s fastest — usually a discount push, a credit-card float, or cutting a marketing budget that was actually working. A real reserve buys the owner time to make a considered decision instead of a panicked one.

How to Calculate Your Target Number

Add up your true fixed monthly costs — rent, base payroll, insurance, loan payments, core software subscriptions — and multiply by three for a minimum cushion, six for a stronger one. A school with $18,000 a month in fixed costs should be targeting a $54,000-$108,000 reserve, independent of what its gross tuition revenue happens to be that month.

Building It Without Starving Growth

Rather than treating reserve-building as a separate, painful initiative, set up an automatic sweep of a fixed percentage of revenue (commonly 3-5%) into a separate savings account every time deposits hit your main account. Treated as a standing line item rather than “whatever’s left over,” a reserve builds steadily without requiring you to consciously choose it over marketing or payroll every month.

FAQ

Should my cash reserve be based on revenue or expenses?

Expenses — specifically your fixed costs. Revenue-based targets can overstate your real cushion, since revenue is exactly what drops in a slow month.

Where should the reserve actually sit?

A separate business savings account, not mixed into your main operating account, so it isn’t accidentally spent on routine expenses.

Stephen Oliver has coached martial arts school owners on financial discipline since 1975, alongside World Champion Jeff Smith and Grandmaster Greg Moody. Want help setting a realistic reserve target? A free evaluation call can help you build the plan.

See also: the Profit & Financial Management category.

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