I've been running a small software consulting business for a little over a year, initially on the side but as of last September it's been my sole revenue source. Currently I have one large retainer client that pays all of the business expenses and my salary, plus a few here-and-there clients that I work into my schedule as needed. I also have small somewhat-unpredictable additional revenues from a book that I sell. I plan on expanding my product line over the next year to the point where it can contribute equally to the retainer client.
I tend to keep about eight weeks of cash flow in the business at any given time (I pay myself weekly). Every quarter I take any cash above eight weeks, set aside 30% for taxes, and pay myself a distribution. I have no employees.
Eight weeks of cash is a substantial amount of money to be floating in a checking account. I opened a money market account next to the checking which pays a paltry amount of interest (something like 0.5%) for the quarterly tax savings to live but I would like the cash flow buffer to work a little harder, if possible.
On the personal side, my wife and I have about 4 months of current-budget savings. If we just have to compensate for the big client dropping off but she keeps her job we can stretch it to about 10 months, and we'd be able to stretch further by dropping non-essential luxury expenses.
Questions:
1) Is eight weeks enough? Too much? It's basically insurance against the possibility that my big retainer client cancels my contract (I would put this at about a 5% probability within the next 12 months).
2a) Should I be thinking about throwing a portion of the cash flow buffer into an investment account of some sort?
2b) If so, are there any banks that make more sense than others? As far as I can tell I can't open a taxable Vanguard account with the business EIN.
Thanks!