🐰💬 How much cash does the company keep safe?

🐰💬, whether the business is small or large, the question that every entrepreneur has to face is, "How much cash should we keep?" Because cash is the blood that feeds the enterprise. A little lack can make the company disappear forever.

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Having too much cash is not good, because money will lie still without growing, but too little is risky, so that it will not spin in time for a crisis.

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In general, the principles recommended by financiers and business consultants are:

- Small Business (SME): Should keep cash reserve for at least 3-6 months of fixed expenses.

- High-risk or season-dependent business: should be collected for 6-12 months to cope with uncertainty.

- Stable business with consistent income: may keep only 2-3 months. Enough

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According to Harvard Business Review (2020), companies with cash buffer 6 months or more are twice as likely to survive an economic crisis than companies that collect cash less than 3 months.

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According to JP Morgan (2021), half of SME businesses in the US have less than 27 days of cash reserves, which is the main reason small businesses are ruining faster than they think.

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Business does not fall because it sells poorly only... but falls because "cash runs out early."

If you still don't know how much cash the company should collect today, calculate the monthly fixed cost and multiply it by at least 3-6 months. That's how much you can sleep better.

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Reference:

- Harvard Business Review. (2020). How Much Cash Should a Company Keep on Hand?

- JP Morgan Chase Institute. (2021). Cash Buffers and Small Business Resilience.

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