If you’re new to the term “cash position,” here’s an overview: cash position refers to an organization’s funds after accounting for liabilities and expenses. Essentially, it’s money that can be invested toward additional business opportunities or used to subsidize unexpected losses. And during a crisis—like the one going on today—knowing your cash position is essential to paying your bills and staying afloat.
Here are three ways that understanding your company’s cash position can help you endure the pandemic:
Withstand the Domino Effect
A suffering economy creates a domino effect: if one business closes, a different business loses a client. In turn, that second business might need to cut ties with one of its own providers, which leads to financial loss for a third business, too. On and on the dominoes fall, until multiple companies are losing business (and money!). But because you’re reading this article, you’ll expect these losses and can take steps toward mitigating their effect.
By understanding your company’s cash position, you’ll know exactly what hits your company can take before going under. In turn, you can fortify your business against these losses, perhaps by prioritizing money-saving initiatives or foregoing a risky investment. Essentially, your cash position provides a rough outline of what your company can endure financially. And by understanding your cash position, you can take proactive steps to prevent your company from ever using money it doesn’t have.
Prepare for the Next Emergency
Unfortunately, COVID-19 isn’t the first pandemic we’ve faced, nor will it be the last. And recessions aren’t only caused by health emergencies; in fact, they happen about once every four years. For this reason, it’s important to understand your company’s current cash position, which can be used as a baseline through which to compare your company over time. And with this reference point, you’ll be able to understand how your company is adjusting (or failing to adjust) to unexpected circumstances.
Too often, a business is unable to adapt to an emergency, all because it didn’t prepare in advance. Thus, emergencies are something you should always be ready for, since you’ll rarely know one’s coming. If the current pandemic caught you unaware, the current situation is a great opportunity to prepare for the next large event. In fact, it’s all the more reason to prepare for next time, which could be coming sooner than you think.
Understand More About Your Company
A company’s cash position reveals a great deal about its needs, priorities, and ability to endure. Certain investments might be less fruitful, while others might be worth prioritizing. The same is true of partnerships, vendors, and even resources. And once you understand what’s working for your company—and what isn’t—you can make more informed decisions to improve your cash position, productivity, and overall efficiency.
Cash positions change daily, so you should frequently check your cash position and be aware of any dips or spikes. Through data analytics, you’ll be able to track these changes, understand their source, and take steps to improve your operations. And by analyzing these numbers, you’ll have a better idea of how to adapt to an emergency, change your “normal,” and come out the other side unscathed.