Although it is imperative for a small business to hold cash reserves, there are also significant drawbacks in doing so. First, inflation results in purchasing power decreases for a fixed amount of money over a period of time. By holding cash while prices rise, you are able to buy less of a good for the same dollar amount in the future. In addition to inflation risk, holding cash on site requires additional internal control measures. To have cash on hand, a small business must spend on physical controls such as a safe, training, authorization policies, and wages during reconciliation. Alternatives exist for the secure holding of liquid assets that maintain cash flow opportunities. Money market funds are investments that earn higher interest rates while remaining relatively safe. Short-term certificates of deposit return higher interest rates at the cost of access to funds. While these investments are typically insured by the government, you must agree to not withdraw funds or a penalty will be assessed. For the most flexibility, seek bank accounts that offer high-interest checking accounts. Physical banks and online institutions have competitive rates. However, be aware you will be taxed on interest earned. Before hiding bills of cash around the office, capitalize on opportunities to grow your savings if you understand the potential downsides.
2017-02-15 00:00:002017-02-15 00:00:00https://quickbooks.intuit.com/ca/resources/cash-flow/how-to-secureCash FlowEnglishDiscover the downsides to holding cash reserves and safe alternatives that exist to maximize the benefit of your emergency fund.https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/06/Food-truck-employee-secures-cash-from-customer-at-sweet-shop-window.jpghttps://quickbooks.intuit.com/ca/resources/cash-flow/how-to-secure/How to Secure Cash
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