Understanding how much capital to keep on hand and how much can be safely assigned to reserves or paid out as dividends can be a make-or-break moment for small business owners. Luckily, there are clear ways to tell how much cash you need to keep on hand, just by adding up your costs and looking at the structure of your income. You need to factor in three major considerations when adding up capital needs.

The first is the cost of your burn time, the overhead you pay even if you are not making money and demand is flat. Then you also need to add up the costs of your goods and services in both cash payments for supplies and costs like labor or power. Finally, you’ve got to consider the difference between the timing of your cash obligations and the timing of payments. Companies that provide high-value services to infrequent clients tend to have longer waits between paydays than cash operations offering everyday conveniences, for example.

The key to having the right amount of working capital on hand is equilibrium between your income and your outgoing cash over a certain window while maintaining enough cash on hand to cover obligations even when customers pay late. That means having a bit of cushion that can cover the costs of doing business and keeping the lights on if a customer keeps you waiting. Generally, one or two months of operating cash is normal, with extras in cash reserves against a real emergency.

While keeping this kind of working capital on hand is difficult, many companies turn to financing to help. Through cash advances against business assets and short-term loans, they are able to access operational budgets, allowing income to be used to pay off the financing and replenish cash reserves. This method of cash management is good for minimizing risk and maximizing the effectiveness of your reserve cash, but it does come with some costs. Financing working capital tends to be expensive unless you find a routine and work to optimize it.

This is why many businesses choose a single strategy like credit lines or AR financing to carry them through lean periods. With the right selection, you can improve productivity and reduce your administrative overhead so it is easier to offset the costs of the service. One great example would be using factoring to outsource your receivables and quickly close invoices, which is a strategy used by many single-person operations.