When the work’s flowing and jobs are rolling in, it’s easy to get caught up in the day-to-day grind of running a trade business. But what happens when things slow down unexpectedly? Whether it’s illness, injury, weather delays, or an economic downturn, having a financial safety net can mean the difference between riding out the storm or sinking under stress. This is where the golden rule comes in: Keep some rainy day fund.
What Banks Know That You Should Too
In the world of banking, this idea is called Tier 1 Capital. It’s not just a best practice—it’s a legal requirement. Governments require banks to hold a certain amount of capital on hand to protect against financial shocks. That’s how important a cash reserve is.
For small businesses—especially trade-based ones like plumbing, carpentry, electrical, or construction—there’s no law forcing you to keep cash on hand. But if you don’t, you could be one rainy day away from a financial crisis.
Why Cash Reserves Matter for Tradies
Running a trades business means dealing with irregular cash flow. Jobs can be seasonal, payments can be delayed, and unexpected costs crop up all the time. While invoicing and quoting are essential parts of business, so is planning for the unexpected.
Imagine:
- A back injury that puts you off the tools for 4 weeks.
- A delayed payment from a major client.
- Storms that halt work on site for a week.
- A vehicle breakdown that takes your ute off the road.
In all of these scenarios, your costs don’t stop. Your mortgage, vehicle finance, staff wages, and insurance premiums still need to be paid. Without a reserve, you’re either dipping into credit (which can snowball quickly), or worse—missing payments and damaging your financial reputation.
How Much Cash Should a Tradie Keep?
A good rule of thumb is to hold enough cash to cover your living expenses and fixed business costs for at least 6–8 weeks. This could include:
- Home mortgage or rent
- Vehicle and equipment loan repayments
- Fuel and tools
- Utilities and business insurance
- Basic groceries and household bills
Even if you have income protection insurance, there’s often a waiting period before you start receiving payments—usually 2 to 4 weeks. And even then, you might only receive around 75% of your regular income. That gap can be financially painful without a buffer.
Building Your Financial Safety Net
Here’s how you can start building your rainy day fund:
1. Calculate your baseline needs
Add up your essential monthly living and business expenses. Multiply this by 1.5 to 2x to determine your ideal reserve.
2. Open a separate savings account
Keep your emergency fund out of reach. Use a high-interest business saver or offset account to store it.
3. Make it part of your quoting and pricing
Build a margin into your quotes that allows you to skim a small amount from every job into your emergency fund.
4. Automate your savings
Set up an automatic transfer from your business account to your rainy day fund, just like you would with a tax savings account.
5. Use windfalls wisely
When you land a big job or get a tax return, use part of it to boost your reserves rather than upgrading tools or buying a new ute.
It’s Not About Fear—It’s About Control
Keeping some cash aside isn’t about being pessimistic. It’s about being smart. A financial buffer gives you peace of mind, decision-making freedom, and the power to say no to low-margin jobs or poor payment terms. It also means you’re better positioned to seize opportunities when they arise—like hiring a new apprentice or upgrading your tools without debt.
Final Word
Just like you wouldn’t head to a job without the right tools, you shouldn’t run your business without a financial safety net. Keeping cash free for a rainy day fund isn’t a luxury—it’s a lifeline. Tradies who prepare for the unexpected are the ones who stay in business for the long haul.
So next time you’re mapping out your small business loan budget, don’t forget to factor in your future self. A little discipline now could save you a lot of stress later.