Cash on Hand Definition

Cash on Hand Definition

What is cash on hand? The definition of cash on hand is the amount of accessible cash a business has after paying all its costs. Generally, it includes any assets you can liquidate into cash in less than 90 days. It does not include money the business cannot spend, such as the minimum deposit required to keep a bank account open. 

Somewhat misleadingly, cash on hand need not actually be paper cash. It simply must be readily available money that can be paid or easily transferred.  

Other Names for Cash on Hand

Cash on hand may be referred to as cash equivalents, reserve funds, or just cash.

Cash on Hand Benefits

Having cash on hand allows a company to pay rent, operating costs, and vendors if the business’s income stream slows down. Depending on the type of business, it’s advisable to have three to six months of operating expenses on hand. Some businesses experience seasonal ebbs and flows and need to increase their cash on hand accordingly. 

Another one of the advantages of having cash on hand is that it allows your company to seize on investment opportunities without having to wait for financing or incur debt liability. But if a chance to expand your business comes along, you must weigh the opportunity costs against the risk of depleting your cash on hand. 

Cash on Hand Considerations  

How much cash your business has on hand reflects on the health of your company. If your cash flow statement shows you have enough cash on hand to keep your business running normally for a significant period of time, potential investors, partners, or customers likely will view your business as a healthy one.

Your business’s cash on hand also provides an indicator of your company’s financial worth. 

Cash on Hand Disadvantages

Too much cash on hand may mean you are not maximizing your growth opportunities. Whether you put your money to work growing your business or growing your wealth, it’s wise to invest and not keep all your cash on hand.

The Difference Between Petty Cash and Cash on Hand

Commonly a small business will have petty cash, which is actual bills kept onsite. This money may be used for minor daily expenses instead of using a credit card or check. Businesses use petty cash for things like buying lunch to serve at a meeting or paying an electrician $100 for an unexpected repair.

In contrast, cash on hand covers all the company’s operating expenses during a slow business season. Cash on hand also most likely is not stored on the business’s premises.

Cash on Hand Examples

Any actual cash on-premises, checking accounts, and savings accounts would be classified as cash on hand. A piece of real estate you can sell for cash would also count as cash on hand. Cash on hand primarily consists of any assets that can be quickly liquified if the need for funds arises.  

Summary

Every business should prioritize having enough cash on hand to cover its operating expenses for several months to safeguard against the unexpected.