How much cash do I need to keep in my bank?
How much cash do I need to keep in my bank?
Working Capital
Whatever it is, the way you tell your story online can make all the difference.
Working capital is the amount of money that you have in your bank account compared to the amount of that you need to pay. If the money in your bank is more than the money that you need to pay you have a good working capital amount, if it is less then you will be having problems. These problems generally mean that the company cannot afford to pay it’s bills each month. In some circumstances the money may not need to be in the bank account but it can be anything that can be quickly converted in to cash.
What do I spend each month?
Whatever it is, the way you tell your story online can make all the difference.
You really need to know what money you are paying out each month, this is the money that you have to pay out each month like office costs, wages, software costs and payments to the owners. But you also need to be honest and look at all the discretionary spending that you do, do you have to travel to a meeting if you are seeing a new client, do you have any marketing expenses that you are paying each month but whilst not being vital are still getting paid.
What do I get paid each month?
Whatever it is, the way you tell your story online can make all the difference.
How much do you actually get paid each month, not what amount you invoice but what is paid? When you send your invoices to clients do you have to wait a week or two or even a month to get paid. If you are starting a new project would you have to wait a few weeks after to get paid? You will need to be clear on how much you are getting paid each month to be able to calculate what your working capital is that you need to keep.
How do I calculate this?
Whatever it is, the way you tell your story online can make all the difference.
This really depends on how frequently you invoice your clients. If you get paid on a monthly basis, you need to keep the money in your account until you get paid next. If their gaps in your payments, that you don’t get paid for a few months you will obviously need to keep cash in the bank to last until you are paid by your client. Each business will have different requirements. But Once you know how much you are spending each month, how much you are invoicing each month and when you are getting paid you can start to calculate how much working capital you need to keep in your company.
So how much cash do I need to keep?
Whatever it is, the way you tell your story online can make all the difference.
Essentially you are making sure that once you have invoiced your client that you have sufficient cash in your bank account taking in to account all of the bills you need to pay until you get your invoice paid. This is quite simple. But when you have multiple payments being made each month and several invoices paid in to your bank account each month. You will need professional help from your accountant to track all of these payments in and out of the bank account. If you need help doing this please reach out and we can arrange a call to see how Pisces can help you.