We have all heard by now that you should keep anyhere from 2 to 3 months worth of business expenses in the bank for when times are lean, but exactly why is that? Are not having profits simply enough? Well to put it politely, NO!
It’s not enough to have profits when those accounts have never paid you. It’s not enough to send out invoices and yet, not have deposits to show for it. A small business (or any business for that matter) can survive without income for a little while, but it will not survive without cash at all for any length of time. Cash is the absolute lifeblood of all businesses.
Cash can take on many various forms such as extra money in an account, stretching out accounts payable, established lines of credit, funding from private investors, and having assets that are easily liquidated into cash. By having cash or quick access to it, your company can avoid going into debt and avoid paying unnecessary interest on business debt.
When you have available cash, you can take advantage of sales on much needed equipment. Paying with cash in full normally accompanies discounts which will also enable your company to save additional money. To put is simply, cash is a small businesses lifeline. Without it, there is no business.