How many months of reserve is enough?

Enough to cover the gap in your own slow months rather than a generic number of months. A business with a six-week dip and low overhead needs far less than one with a four-month winter and six trucks on finance. Work it from your own seasonality, which is what this calculator does.

Should the tax set-aside be part of this?

No, and keeping them separate matters. Tax money was never yours, and treating it as a slow-season buffer is how a quiet February becomes a payment plan. Two accounts, two purposes.

What if I cannot build the reserve at all?

Then the busy months are not producing enough margin to carry the year, which is a pricing or cost problem rather than a savings problem. That is worth knowing in July rather than discovering in January, and it is usually visible in the job-level numbers well before it is visible in the bank.

Free tool

Slow season reserve calculator

The slow season is not a surprise. It arrives on roughly the same dates every year, and the only question is whether the busy months were used to pay for it.

Method reviewed by Darren Lim, US CPALicence CPA.74253602

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Reserve your slow season needs

$72,640

A slow month produces $21,840 of gross profit against $40,000 of cost. That $18,160 gap, 4 times over, is what the busy months have to fund.

Slow month gross profit$52,000 at 42%$21,840

Slow month costOverhead plus your draw. Neither slows down.$40,000

Gap per slow month$18,160

Across 4 slow months$72,640

Busy month surplus$60,900 gross profit less $40,000 cost$20,900

Still to save$72,640

Save per week through the busy seasonAcross 8 months. A number you move every Friday survives a busy season; an intention does not.$2,097

Share of your busy-season surplusThe rest is genuinely profit43.4%

Profit left over the whole yearAfter the slow season has been paid for$94,560

The shape of the year is knowable

HVAC concentrates revenue into summer and winter. Roofing follows the weather. Pest control has a spring surge. In every case the slow stretch is predictable to within a few weeks, and predictable problems are budgetable ones.

What makes it painful is that overhead does not follow the same curve. Rent, insurance, truck payments, office wages and your own draw continue at full rate through the quietest month of the year, which is exactly when gross profit cannot cover them.

What the reserve actually has to cover

Not the whole of the slow months — only the gap. Slow-season revenue still produces some gross profit, and the reserve fills the distance between that and what the business costs to keep open.

Add to it whatever you need to take out personally. A reserve that covers the business but not the owner is a reserve that gets raided in week three, which is the same as not having one.

And keep it separate. Money that is visible in the operating account during a busy August will be spent in August, every time.

Building it out of the good months

Divide the reserve by the number of busy weeks and it becomes a weekly transfer, which is a habit rather than a decision. A number you move every Friday survives contact with a busy season; an intention to "put something aside when things calm down" does not.

The alternative is a line of credit, and the two are not equivalent. A facility is genuinely useful and costs interest; a reserve costs nothing and cannot be withdrawn by a bank that has changed its mind about your sector. Most contractors want both, arranged in the order of reserve first.

Common questions

How many months of reserve is enough?: Enough to cover the gap in your own slow months rather than a generic number of months. A business with a six-week dip and low overhead needs far less than one with a four-month winter and six trucks on finance. Work it from your own seasonality, which is what this calculator does.
Should the tax set-aside be part of this?: No, and keeping them separate matters. Tax money was never yours, and treating it as a slow-season buffer is how a quiet February becomes a payment plan. Two accounts, two purposes.
What if I cannot build the reserve at all?: Then the busy months are not producing enough margin to carry the year, which is a pricing or cost problem rather than a savings problem. That is worth knowing in July rather than discovering in January, and it is usually visible in the job-level numbers well before it is visible in the bank.

What we do about it

Monthly reporting that shows the seasonal shape as it develops rather than after it has happened, so the reserve target is set from your actual last twelve months instead of from an impression of them.