What Is the Cash Balance?


A cash balance is a relatively simple concept. In business, the tricky part is maintaining a positive available cash balance while still meeting financial obligations and developing strategies for a business to grow. A business owner must monitor the company's cash balance closely, including all expenditures and company debts, to ensure the business is bringing in sufficient capital to keep accounts in the positive and thrive long-term.

Cash Balance Definition

A cash balance is the amount of money available in a bank account. A positive balance in the account indicates cash available to make purchases, whereas a negative balance shows an excess of debts drawn on the account. An account with a negative balance is said to be overdrawn. A cash balance does not include deposits into a bank account that the controlling financial institution has yet to verify, because the account holder cannot withdraw these funds as cash.

Net Cash Balance

From a business perspective, a net cash balance is the remaining available cash in a company's bank accounts after paying creditors and other financial obligations over a given period. Net cash balance is important because it serves as a gauge for the overall financial health of a company. A business scraping by with only a small net cash balance does not have the same ability to handle unexpected risks, including equipment failure and poor product sales, as a company with a substantial net cash balance.

Managing Cash Flows

Cash flow management is an integral part of running a business, because a company with too much money leaving and not enough coming in will have trouble sustaining long-term viability. Accounting personnel working with ownership must keep close watch on the company's incoming and outgoing cash to ensure sufficient money exists in accounts to continue meeting all financial obligations. Cash flow doesn't just include income and debts, but also contains costs relating to product construction, storing of business inventory and capital expenditures to maintain essential equipment.

Maximizing Cash Balances

Spending cash more efficiently helps a business preserve its cash balances, while continuing to pay debts and grow the company as a whole. Efficient spending involves reducing the drag on the company's revenue stream by shortening production steps, reducing extraneous workforce numbers and installing new equipment to facilitate faster production that is more reliable. This allows a business to maintain higher cash balances, which can provide the company the ability to act quickly on new opportunities, including developing new product lines to meet perceived needs in the market.

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