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Excess Cash on Hand - Businesses
Posted on 3/11/15 at 1:10 pm
Posted on 3/11/15 at 1:10 pm
How much excess cash on hand would you say the average business has in its bank account. I know the answer to this question could vary greatly depending on the type of business, health of the business, etc. I am just curious to what everyones thoughts were.
Posted on 3/11/15 at 1:16 pm to TheDirty1
That's an extremely vague question that cannot be answered in any accurate manner. It could be between $5 and $500,000.
That's like asking what's in your personal account without knowing anything about your finances.
That's like asking what's in your personal account without knowing anything about your finances.
Posted on 3/11/15 at 1:41 pm to TheDirty1
How much of an emergency fund does the average family have? That's pretty much what you are asking.
I assume you are talking about cash on hand that's easily accessible and non-committed... for example, if you are saving money for something particular, that would not count.
I assume you are talking about cash on hand that's easily accessible and non-committed... for example, if you are saving money for something particular, that would not count.
Posted on 3/11/15 at 2:18 pm to LSUFanHouston
Sorry for the confusion. I obviously did not word the question well. How much cash does the average business keep relative to expenses. I guess it could be considered an emergency fund for a business. If a companies expenses are $100 a month and $200 is kept in cash they would have 2 months expenses in cash. What would would you think is a common ratio of cash/monthly expenses.
Posted on 3/11/15 at 2:21 pm to TheDirty1
They don't base it on expenses normally. It's a liquidity calculation. You normally want to see a current ratio of above 1.
There is also the quick ratio, but that's not as commonly used.
There is also the quick ratio, but that's not as commonly used.
Posted on 3/11/15 at 3:14 pm to TheDirty1
I measure financial condition relative to both the balance sheet and the income statement.
My non-expert opinion....
Cash Burn Rate = (Cash / Operating Expenses + Debt Service) x 365
At a minimum, it should be equal to the greater of 90 days or 3 x your average cash conversion cycle days.
Generally speaking, anything less represents liquidity risk, and anything more represents capital planning issues.
My non-expert opinion....
Cash Burn Rate = (Cash / Operating Expenses + Debt Service) x 365
At a minimum, it should be equal to the greater of 90 days or 3 x your average cash conversion cycle days.
Generally speaking, anything less represents liquidity risk, and anything more represents capital planning issues.
This post was edited on 3/11/15 at 3:15 pm
Posted on 3/12/15 at 6:32 am to TheDirty1
I'd say the biggest variable here is the type of business you're speaking. Lifestyle business (i.e. cash flow biz) vs. Venture business (high growth cash flow negative biz). The former probably has a decent amount of reserves, but will budget what it keeps on hand and what it distributes to members/shareholders based on yearly op ex budgets and cap ex budgets. To THF point, most financial officers will forecast liabilities month-month and will make sure they have enough liquidity on hand to pay them off as well as a healthy margin of error. Ventures business is way too unpredictable and at any point could be flush with cash and 12 months later only have 2-3 months of runway left on their books and in need of more money.
Of course, there are other scenarios than the above, but I'd guess those are the two main types of businesses out there.
Of course, there are other scenarios than the above, but I'd guess those are the two main types of businesses out there.
This post was edited on 3/12/15 at 6:36 am
Posted on 3/16/15 at 3:12 pm to Hand
Burn rate is definitely a relevant calculation for startups in the i curve. I was thinking about more developed companies in my response. Very good reply.
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