Cash is physical currency, such as banknotes, coins, and readily available electronic funds in bank accounts that can be easily accessed and used for payments.
Primary Implication
Every business requires a minimum amount of cash to maintain operations, making cash the number one asset. Any business that operates too many days below its minimum cash requirements will have serious problems.
A quick test to confirm your risk of running out of cash is to divide the cash and cash equivalent amounts reported on your Balance Sheet minimum by the amount of expenses incurred. If the result of the math is greater than one, then your business has substantial cash reserves. If below one, you must convert sales and A/R to cash to cover your cash outflow obligations.
Overview
Cash is a current asset reported on your Balance Sheet that represents available money to meet the financial obligations of a business. It is the number one asset of a business, representing money in hand, petty cash, bank account balance, customer checks, marketable securities, and the unutilized portion of a line of credit.
No business survives if there isn’t enough cash to operate. Always protect your business by protecting your cash—the lifeblood of any business—first through forecasting weekly cash inflows and outflows, and second, by stopping unnecessary cash outflows that drain cash reserves and contribute to profit leakage.
The key to cash as an asset is that, when you are out of cash, you are out of business. Maintaining some cash balance reflective of your cash-on-hand target is critical, the amount you never intend to dip below for peace of mind.
Carry too much of a cash balance; you lose the opportunity to put your cash to work for you in short to near-term marketable securities. Fail to carry enough cash, and you risk going out of business because you ran out of cash.
