What is cash position and why is it important?

chart and graphs showing the cash position of a business

Catherine runs finance for an online beauty brand doing $11M in annual revenue. Her brand’s products can be purchased on their Shopify site and in their Amazon store, and they are in talks to put several SKUs on Target shelves. Growth has been steady and sustainable, and sales forecasts show a promising outlook for the coming year.

However, Catherine spends at least one full day each month poring over exported spreadsheets and statements, trying to figure out her brand’s current cash position. She balances what cash they have coming in with what cash needs to go out, and then she makes note of any gaps or issues with timing. She works with one set of numbers from Amazon, one set of numbers from Shopify, and attempts to match the results across the transactions and balances she sees in the company’s various bank accounts. Then, she concludes which vendors to pay first and which can wait a little longer. The process is long and tedious, but she know’s it’s important.

Receive guidance on monitoring your cash position

What is cash position?

For most business owners–and finance leaders like Catherine–cash is top of mind every day. Cash position is the amount of cash (or other liquid assets) a business has on its books at that time. Cash position is extremely important to business owners and finance leaders because it paints a picture of the business’ financial health, and it’s critical to understand how much cash is coming in compared to how much cash is going out in order to avoid cash timing issues.

Related video: See cash position in action

Why is cash position important in  business?

While many business owners and finance leaders feel like they have an adequate handle on generally how much cash their business has when running the day-to-day operations, some have no idea how to get a full picture of their cash position. They often wait until their books close each month to make decisions, and even then, they have a nagging feeling that they’ve missed something.  

Closing books at the end of a month, quarter, or other accounting period provides finalized financial records for that period. Important decisions are made once those finalized records are produced, but it can be days or weeks later than when those decisions could have been made to optimize cash flow. For example, if a business has a strong sense of their cash position, they can make immediate decisions like increasing ad spend to optimize their ROAS this week, or running a discount promotion to increase this month’s customer lifetime value (LTV). When business owners and finance leaders wait to make these decisions because they aren’t sure their cash position can support these actions, they miss real-time opportunities to grow.

What should businesses do to improve their cash position? 

To have a full grasp on cash position, the top priorities for business owners and their financial teams should be:

  1. Monitor all accounts daily. It’s important to know exactly where you stand every day across all bank accounts, aggregating and monitoring all sources of cash.  
  2. Track all cash inflows and outflows. Knowing what is coming in and what is going out of your accounts each day (otherwise known as cash flow) is critical to fully understanding your cash position. Make note of what time of day you receive deposits from your sales platforms and what time each bank auto-pays your bills each day, and run your numbers after all of those transactions clear.
  3. Run weekly cash forecasts. With accurate cash forecasting, business owners and financial leaders can take their businesses to the next level. Accurate forecasts provide glimpses into the future and allow you to project sales, product demand, and cash flow with surprising accuracy, ensuring you have plenty of inventory on hand to meet demand and plenty of available cash to make payroll and pay bills. With accurate cash projections, you can leverage opportunities to grow, like expanding into a new channel, reaching new audiences, or accessing growth capital.

New cash position solution

To help business owners and financial leaders solve these issues and automate the manual effort involved, Brightflow AI developed a new Cash Position dashboard. The Cash Position dashboard gives you the ability to see a consolidated daily view of your cash inflows and outflows from all of your accounts, without waiting for your books to close. Cash Position is a time-saving tool that allows you to categorize transactions, identify patterns so you can make data-driven decisions, and have the manual work of monitoring your cash position done for you.

With Brightflow AI’s Cash Position solution, you are able to:

  • Aggregate all of your cash sources on a daily basis
  • Stay on top of your total cash so it does not fall below thresholds
  • Manage categories of spending so you do not exceed budget
  • Assess the frequency and impact of vendor payments based on historical data
  • Assess the timing of cash inflows and outflows as it relates to revenue and expenses
  • Holistically evaluate cash movement, especially when it comes to non-banking accounts, without waiting for your books to close

Conclusion 

Monitoring cash position is critical to running day-to-day operations, making real-time business decisions, and even qualifying for a loan. If you need help setting up your own cash position monitoring processes or would like more information about Brightflow AI’s cash position solution, please reach out to sa***@br********.ai or schedule a call to learn more.


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