The cash balance is the total amount of money a business has. This can include both actual cash and liquid assets that can quickly be turned into cash.
Cash balance is money stored in a safe or a cash register, but can also include liquid assets like bank deposits or stocks. It’s sometimes called cash holdings.
Why cash balance matters
A healthy cash balance ensures that your business has enough money to cover its expenses, and that it’s financially stable. It also lets you invest in new opportunities, take on bigger projects, and maybe even hire employees.
Money is considered a current asset and should be included in the business’ balance sheet. The balance sheet shows what your business owns and owes.
How to track it
Businesses often keep a journal to track the daily cash balance. Each day’s total is recorded and checked for accuracy.
This is called reconciliation and involves comparing the amount recorded in the cash journal with the figure in your business bank account. Reconciliation ensures that the figures in the records match actual balance, giving you a clear and up-to-date picture of the business’ available money.
How to calculate the cash balance
To calculate how much cash you’ll have at a specific point, you can use a cash flow formula. It looks like this:
Starting amount + inflows – outflows
If you start January with $5 000 in your safe, and earn $1 000 while spending $500, the amount at the end of the month will be:
1 000 (starting amount) + 1 000 (inflows) – 500 (outflows) = $5 500 dollars.
You should have a reserve: a portion of your money that you set aside for emergencies and unexpected expenses. How much of a reserve you need depends on, among other things, how big your operating costs are.
