Are Your Cash Balance Optimal?

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Understanding and managing a company’s cash balance is an arduous task. The financial complexity that businesses entail drives owners to put it in the hands of expert accountants or accounting firms—which is an excellent option. However, owners being the significant decision-makers of a business, need to recognize the value of understanding cash flow and financial balances.

Cash, being the company’s prime asset, is used to fuel business operations, pay taxes and liabilities, and facilitate growth and expansion. It is also a significant indicator of a firm’s financial position and performance in the industry. Understanding its concept makes it easier to manage it, ultimately resulting in an optimized financial balance that is neither too much nor too little.

Understanding Cash Balance

Cash balance is the actual amount of money left in a firm’s account. It refers to the liquidated asset or cash at hand that a company can use to reinvest in itself or free up operating capital. A firm should focus on creating an optimized cash balance—an ideal amount of money at hand to hold in reserve at any given time.

Firms must be careful when setting their targeted cash balance. Holding too much might cause an enterprise to miss out on excellent investment opportunities, such as buying out a rival business brand during its bankruptcy stage.

At the same time, holding too little money may present problems during sudden financial flow disruptions or emergency monetary transactions. This includes an abrupt increase in operational costs or during the lean period of the product or service you offer.

Striking a balance in your fund reserves had proven useful in seizing timely opportunities and remedying emergency business situations. So, here are some smart ways to optimize and improve your company’s cash balance.

  1. Set A Good Forecast

Evaluate your recent financial flow and balance to see your current status, as well as get an idea of what direction it will take in the ensuing months. Map out the cash flow projection and see how much funds are left after all sales, costs, and expenses are accounted for or tabulated. The best possible trend would be an increased flow of money towards the firm, partnered with reduced money outflow.

Determining your target financial balance depends on the economic condition of your chosen industry. Identify which point of the market cycle you are in and make a target cash balance from that information.

2. Manage Your Finances

The key is to develop a balance on your current asset that is neither excessive nor deficient. To achieve and maintain an optimal amount of money, you should create systems and strategies to manage your finances efficiently, such as:

  • Creating a set of financial goals or objectives.
  • Identifying how much money you have, how much you need, its sources, and its purpose.
  • Evaluate your company portfolio to assess investments and holdings. Identify which long-term investments align with your established goals. Liquidate, sell, or trade an investment that proves to be useful in the form of cash.

These strategies will help owners and investors identify the percentage of their holdings and investments in liquid form. It is also crucial to know the right time to liquidate assets, reinvest it in the company, and use it to get or buy new investments.


Maintaining a sufficient amount of funds at hand while also satisfying your firm’s daily requirements is a challenging feat to undertake. It won’t hurt to outsource the work to a trusted accounting firm that can manage your balances effectively. Collaborate with them and identify the best practices to ensure optimal financial health. 

If you have questions or inquiries about how you can make your cash balances optimal, feel free to get in touch with Annette & Co. today. As we can also help you by providing an insight more into your financial management. You can also subscribe to our YouTube Channel.

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Annette Ferguson

Annette Ferguson

Owner of Annette & Co. - Chartered Accountants & Certifed Profit First Professionals. Helping Online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.