"Cash on hand" refers to the liquid cash assets that you or your business has readily available. This includes the money in your checking and savings accounts, as well as any physical cash you have on hand (like the money in your wallet or a petty cash drawer). In other words, it's the cash you can access immediately without having to sell any assets or take out a loan.
Having a healthy amount of “cash on hand” is essential for several reasons:
Covering immediate expenses: Whether it’s paying rent, purchasing inventory, or covering payroll, having “cash on hand” ensures you can meet your financial obligations without any delays or disruptions.
Dealing with emergencies: Unexpected expenses can arise at any time, and having a sufficient “cash on hand” reserve can help you weather those storms without going into debt or compromising your operations.
Taking advantage of opportunities: If a lucrative business opportunity presents itself, having “cash on hand” allows you to act quickly and capitalize on it before it slips away.
Maintaining financial flexibility: With a strong “cash on hand” position, you have more flexibility to make strategic decisions, invest in growth opportunities, or weather economic downturns without being overly reliant on external financing.
For individuals, maintaining a healthy “cash on hand” reserve is equally important. It can help you cover unexpected expenses, such as medical bills or car repairs, without having to rely on credit cards or take out loans. Additionally, having “cash on hand” can provide a sense of financial security and peace of mind.
However, it’s important to strike a balance when it comes to “cash on hand.” While having too little cash on hand can put you in a precarious financial position, having too much cash sitting idle can also be detrimental. That’s because cash that’s not being invested or put to work can lose value due to inflation over time.
To maintain an optimal “cash on hand” level, businesses and individuals should carefully analyze their income streams, expenses, and financial obligations. A general rule of thumb is to have enough “cash on hand” to cover at least three to six months’ worth of expenses, but the appropriate amount can vary depending on your specific circumstances and risk tolerance.
By effectively managing your “cash on hand” position, you can ensure that you have the financial resources and flexibility to navigate both expected and unexpected events, seize opportunities, and maintain long-term financial stability.
