Where do billionaires keep their cash?
Liquid funds: Liquid assets
Be it the cash in your wallet or the credit in your bank account - liquid funds are components of funds or assets that can be used immediately for payment or converted directly into money. Thus they are literally liquefied - that is, made liquid. Your company should always have cash to make payments. But how high should this sum be and what different types are there?
Table of contents
- The rules of liquid funds
- How much should my cash be?
- Overview of your cash flow
The rules of liquid funds
The liquid components of your assets form a current asset item, which is on the assets side of the balance sheet. Liquid funds are used to settle bills with the immediately available money - a lack of liquid funds therefore leads to insolvency and, in the worst case, to bankruptcy. To prevent this, there are different types of cash holdings:
- Order: Immediately available money
- Order: Not immediately available
- Order: Must be sold first
The order therefore depends on how quickly the respective stocks are available: In order to be able to settle an invoice quickly, cash stocks of the first order are best suited.
First-order liquid funds
Immediately available money, such as cash or bank balances. It can be used immediately, although the withdrawal from the cash on hand is more complicated to record. Among other things, you have to note your income and expenses in a cash book so that you can see the current status of your inventory at any time.
Your bank balance, on the other hand, is a very practical means of payment, especially thanks to online banking. With programs like FastBill you always have a full overview of all accounts and can easily manage business transactions.
Second-order liquid funds
These include, among other things, receivables from the account deliveries and services. These arise when goods and services are sold that the customer has not yet paid for - so if you have sold a product, you can expect to receive payment in the foreseeable future. However, since you do not actually own it at the time, the funds are not directly available. Cash and cash equivalents not immediately available are also:
Also note the retention requirements that apply to documents. For example, checks have to be kept for six years, and a booking receipt for ten years. You can find all complete information on the retention periods in § 238 and § 257 HGB, as well as in the tax code of tax law.
Third-order liquid funds
Your company's assets can only be converted into money over a long period of time. These include goods, raw materials and supplies, but also semi-finished and finished products. A high proportion of the possible funds in this category has several disadvantages: On the one hand, you have the costs for storing the products, but on the other hand, you cannot sell them at short notice and convert them into cash in an emergency.
How much should my cash be?
“As much as necessary, as little as possible”: This is the motto when it comes to liquid funds. You need them to cover running costs and pay bills - so you should have a sufficiently high inventory. There are high costs, especially when founding your company, which you have to pay as soon as possible. In this way you protect yourself against insolvency and reduce the risk of bankruptcy.
Since liquid funds do not generate profits, the following applies: "As much as necessary, as little as possible"
Excessive inventory is also not a solution: Liquid funds that remain unused hardly generate any profits or interest income. So they do not contribute directly to the growth of your business and should rather be invested in order to generate a profit. Basically, however, it depends on the economic situation and your company how high you should keep the stocks.
Overview of your cash flow
With the help of the cash flow statement, you can show the origin and use of liquid funds. It is derived from the annual surplus and thus represents the development of stocks. This way you can see where your money came from and what you used it for in the respective period.
This makes the payment flows transparent in order to provide information about your finances and to identify changes in the structure. With the FastBill tool you can keep an overview of your liquid funds and ensure that you are solvent at all times.
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