Why Cash on Hand is Important to Your Business?

Cash on hand is a crucial part of running a business as it influences numerous choices and decisions a business makes. If you want to run a sustainable business, you might want to consider the concept of cash on hand. In today’s article, we define what cash on hand is and its importance to a business.

What is cash on hand?

Cash on hand, also known as cash or cash equivalents (CCE), refers to the sum of all available cash a business has. This includes actual cash as well as accessible balances in checking, savings, money market assets, and other such accounts. In some cases, available credit funds may also be included.

To put it short, cash on hand doesn’t include only cash. It also comprises any liquid asset that could be quickly turned into cash—typically within 90 days. These include:

  • Money market assets
  • Marketable equity securities (stocks)
  • Marketable debt securities (bonds)
  • U.S. Treasuries assets
  • Mutual funds
  • Exchange-traded funds (ETFs)

The key distinction between cash on hand and other sorts of assets is the immediacy of access. In general, it isn’t necessary for the funds to be  physically present on the premises to be considered “on hand.” As long as the business has access within an immediate time frame, the funds are considered part of this category.

Four situations in which cash on hand is needed

Cash on hand is important to any business because it can mitigate risk and come in handy in a variety of situations. We discuss the major ones below. 

Cover expenses on time

Expenses are a necessary part of any business because they are the costs required to run a business. Expenses range from office rents and utility bills to marketing or sales campaigns budgets. 

Let’s say the utility bill is due on the 18th of the month. It’s the 15th, and you haven’t collected enough payments from your clients for some reason. It seems like you have to use extra business funds to cover this expense. 

Unfortunately, funds are already allocated to different uses or purposes, and there are no “spare” funds you could use. If you miss this payment, you’ll be charged a late fee. More importantly, your service may be switched off, and it’ll cause disruption to your business activities. 

Having cash on hand ensures you always have enough available cash or credit to cover expenses at all times and to avoid any unnecessary late fees. Additionally, you should always have an adequate contingency fund so that unexpected, urgent expenses can be paid without interrupting business activities. 

You might be also interested in: 5 Tips to Control Your Business’ Expenses

Reduce transaction costs

Transaction costs are fees incurred when you pay for a product or service through a gateway. If non-cash payments are your main payment option, chances are your business will have to pay a large amount of transaction fees. 

For small businesses or startups, it’s important to keep expenses as low as possible. One way to achieve this is by cutting out unnecessary or undesirable expenses such as payment processing fees from wire transfers, credit/debit cards, or gateways. 

However, when non-cash payments are becoming increasingly the norm in today’s world, it’s impossible for a business to stay completely cash-only. But you can at least lower payment processing fees by:

  • Choosing a low-fee payment processing system
  • Factoring these fees into your pricing
  • Negotiating lower fees
  • Accepting multiple forms of payments to balance out these fees

See more: Business Transaction: Definition, Types, And Example.

Survive an economic downturn

The COVID-19 pandemic has affected day-to-day life and has slowed down the global economy. It’s reported that over 200,000 businesses in the U.S. had to shut down their operations permanently due to the pandemic. 

If your business can survive this dark time and be able to reopen, not only will you have to adjust many of your business operation activities but also follow requirements to adapt to the new conditions. Organizations like the CDC issue such requirements to help businesses and their employees prevent exposure and infection of the Covid-19, for example, cleaning and sanitizing the facility, adding a new ventilation system, or plexiglass partitions. 

Having money on hand might be a lifesaver during these trying times. It’ll assist you in adapting to the “new normal” without going into debt.

Scale the business

Expanding your business may help you increase your customer base, improve sales, and most importantly, get higher profits. But scaling up a business requires both much harder work and lots of investment. 

When upscaling your business, you’ll have to invest in new technology and/or recruit new people. Technology, including software and machines, are frequently one-time purchases. So, rather than taking out a loan or a line of credit and having to pay interest for years, it makes more sense to use your current assets.

Sometimes, your business can grow bigger by acquiring another business. Mergers and acquisitions have become a popular business strategy for companies looking to expand into new markets or territories, gain a competitive edge, or acquire new technologies and skillsets. This sometimes appears to happen overnight. Without having immediate access to the funds to acquire a valuable business, you might miss out on a great opportunity.

The bottom line

Cash on hand refers to a business’s funds that can be used immediately. It comprises cash, any accessible balances in checking, savings, money market and liquid assets. Cash on hand is important to any business because it ensures there will be enough funds to cover expenses, survive an economic downturn or even scale a business.
If you’re interested in entrepreneurship stories, business tips, or productivity tools, find more posts like this on Shoeboxed. Shoeboxed is a cloud-based software that helps businesses turn their piles of paper receipts into digital data. With Shoeboxed, you can do tasks such as scan, store, and organize receipts, manage business expenses, and even track mileage for business travelers. It’s simple to install and easy to use.

Best Ways to Store Your Receipts and Keep Them Organized

Are you frustrated with the piles of receipts taking up your desk space? Have you ever felt stressed when you couldn’t find an important receipt? Or have you ever lost money just because you threw away your past receipts? It doesn’t have to be like this!

This article will share the best ways to store your receipts effectively, so you’ll never have to worry about them! 

Why should you store and organize your receipts?  

Do I really need to store my receipts? 

This question has probably popped up in your mind many times. You may think once a transaction is successful, there’s no reason to hang on to its receipt.  

But, the answer is yes! Here are the top three reasons why you should store your receipts and keep them organized: 

  1. To get ready for the tax season 

As a business owner, it’s in your best interest to lower your taxable income and increase your potential for a tax refund. The good news is most of your business expenses qualify as deductions with the IRS. However, the IRS will want to see receipts and other related documents to verify that your declared expenses were truly spent for business purposes. That means no receipt, no tax refund! 

See also: Understanding the IRS’s Tax Underpayment Penalty and How to Avoid It.

  1. To reimburse expenses correctly 

Often your employees have to use their own money to pay for something on behalf of your company. They then fill in an expense report to get reimbursement. How can you verify if their claims are genuine or not? Receipts can help you! They let you know exactly when and where the transaction took place. Most importantly, receipts tell you the exact amount you need to compensate. This prevents fraud and unwanted disputes in your workplace. 

  1. To stay on top of your spending 

Sticking to your budget is not an easy job. One effective way to do so is to accurately maintain records of every transaction. By doing this, you can have a clear vision of how much you have spent, what to cut out, and which expenses were not worth the money. Consequently, your overall cost and cash flow management will also become more efficient. 

Receipts are indispensable items to ensure your recordings are correct. They are solid supporting evidence for every bookkeeping entry, providing error-free financial reports and helping you stay in control of your expenses. 

See also: How To Track Business Expenses 15 Best Tips & Tools.

How do you store receipts? 

Now that you understand the importance of keeping your receipts, we will show you the best ways to store them. 

There are two common approaches to storing your receipts: traditional and digital. We will go through each method in detail, and hopefully, you will find the solution you are looking for! Let’s go! 

Storing your receipts traditionally 

Traditionally here means you want to collect and organize the paper copies of your original receipts. Here is what you may want to do: 

  1. Buy stationery organizers 

Buying stationery organizers to store your receipts is never a bad investment. File folders, storage cabinets, tab dividers, binders, sheet protectors, colored pens, etc., are all great tools to keep your paper receipts organized. 

A binder is the most suitable choice if you don’t have many receipts. Place sheet protectors in the binder, then slide the receipts into the protectors. If you have a lot of receipts to keep, get storage cabinets.

  1. Categorize your receipts 

Create a system to sort different kinds of receipts. It’s best to categorize based on the type of expense. For example, keep your utility receipts in one separate folder and office supplies in another. Inside your utility receipts folder, you can create subfolders like gas, electricity, water, etc. 

This will save you lots of time when filing taxes because your tax form breaks down the expenses section into different sub-categories, too. 

Consider adding numerical or colored codes to each receipt to classify expenses (e.g., using a prefix of 111 or using the color red to signify utility expenses). Placing the receipts in chronological order is also highly recommended! All these extra steps can quicken your process of categorizing and finding receipts.  

  1. Avoid piling up your receipts  

Schedule a convenient, regular time to sort your receipts. If you usually accumulate a large number of receipts every month, you may want to spend some time every Friday afternoon to go through your receipts. If you have a small volume of receipts, you can wait until the end of each month. 

Regardless, don’t put the task off and let your receipts pile up!

Storing your receipts digitally  

If you want to leverage technology to store your receipts, Shoeboxed is your best option. Shoeboxed stores your receipts and saves you valuable time. 

Just scan your paper receipts, and the Shoeboxed app will automatically extract all of the important data and categorize them. A team of data experts will verify your extracted data and make immediate corrections if there is an error. Your newly categorized receipt data is then available to check and search anytime, anywhere you want.  

Super easy, right? Quick, secure, and accurate; Shoeboxed definitely changes the game in how businesses store receipts. 

Final thoughts 

Storing receipts and keeping them organized is essential for business expense management. Whether you choose to use traditional or digital methods, make sure you always keep tabs on your receipts. 

And if you want to go digital and save time and hassle, click HERE to save 25% off all Shoeboxed plans for a limited time! 

What You Should Know about Operating Activities

Operating activities are the tasks and duties a business has to perform on an ongoing basis to earn an income. They are the core activities of a business and as a result, they affect the cash flow coming in and out, and determine the business’ net income. 

In today’s article, we’ll discuss the types of operating activities, what to include in operating activities, and how operating activities and the cash flow statement are related. 

What are the types of operating activities?

Operating activities are directly associated with a business’s various functions, such as manufacturing, selling, marketing, etc. Here are the types of operating activities:

Revenue-generating activities: Generating revenue is one of  the chief goals of a business; therefore, the majority of business activities are activities that produce income. There are two primary activities that bring revenue to the business: selling products and providing services.

Marketing and advertising activities: These types of activities refer to your business’ actions regarding the promotion and advertising of goods and services. For example, you could hire a graphic designer to create promotional labels or packages. Or, if you want to push the promotions of your products, you’d need to hire a digital marketer to run a new ad campaign. 

Administration activities: Administrative activities are tasks related to maintaining a business. These duties vary widely from workplace to workplace but most often include tasks such as purchasing materials, human resources, and basic accounting. 

Maintenance activities: Maintenance activities are carried out regularly in order to keep your office neat, tidy, and functional. These activities include cleaning, visual inspection, functional tests, lubrication, measurement of operating quantities, and oil tests. 

Customer service activities: Customer service is important to any business as it solidifies the relationship between you and your customers, which results in greater loyalty and more sales. Customer service activities include the support you provide via email, web, text message, and social media. 

What to include in operating activities?

Operating activities are directly associated with a business’ principal goal: to sell its products or services. Through operating activities, businesses are able to generate income and make a profit. Therefore, these activities relate to transactions that affect net income.

The operating activities that result in cash inflows are:

  • Cash receipts from sales
  • Sales of shares
  • Income earned from investment
  • Settlements of lawsuits and insurance claims
  • Collection of accounts receivable
  • Supplier refunds

The operating activities that result in cash outflows are:

  • Employee payments
  • Supplier payments
  • Tax payments
  • Refunds to customers
  • Settlements of fines and lawsuits
  • Interest to creditors
  • Equipment purchase
  • Interest payment on loans and dividends

Operating activities and the cash flow statement

The cash flows from operating activities are one of the most important elements of the cash flow statement. Cash from operating activities is the money generated from the business’ core operations. It is distinct from the cash flows derived from investing and financing activities. 

In contrast to cash from operating activities, cash from investing activities comes from sales and purchase of equipment and assets (tangible or intangible) and other capital expenditures. Cash from financing activities is the money your business gains from the procurement and repayment of short and long-term debt, issuance of equity, purchase/sale of treasury stock, payment of dividends, etc.

The cash flow can be either positive or negative. Having a positive cash flow is a good sign meaning that your business is thriving. On the other hand, having a negative cash flow might indicate that your business is facing trouble. To get an accurate picture of a company’s cash flow from operating activities, accountants add depreciation charges, losses, decreases in current assets, and increases in current liabilities to net income. 

Business managers, owners, and investors review a company’s cash flow from operating activities separately from the other two components of cash flow to see the true source of a company’s money. A positive cash flow from operating activities for a continuous period means the company is going in the right direction and thriving. This is more important than a positive cash flow from investing or financing activities, which are one-time gains from selling assets or stocks. 

Read also: What You Need to Know about Operating Cash Flow Ratio

The bottom line

Operating activities are the business’ core activities to generate income. Operating activities result in operating activities cash flow, the most important element of the cash flow statement.

If you’re interested in entrepreneurship stories, business tips, or productivity tools, find more posts like this on Shoeboxed. Shoeboxed is a cloud-based software that helps businesses turn their piles of paper receipts into digital data. With Shoeboxed, you can do many things such as scan, store and organize receipts; manage business expenses; store business cards and even track mileage for business travelers. It’s simple to install and easy to use.