Small businesses often focus on managing one of their most precious resources – cash! Therefore, you need to be sure you have enough cash on hand to meet your obligations, and hopefully, then some! A great metric you can use to help guide you in this area is the Current Ratio.
The current ratio is where you take your Current Assets and divide them by your Current Liabilities. The goal is to have this result be more than 1 – that means you have enough in Current Assets to cover any upcoming obligations. A Current Ratio of 2:1 is ideal.
What are your current assets anyway?
Current Assets are generally comprised of your cash and Accounts Receivables. If you have inventory, those count as Current Assets too.
What are Current Liabilities?
Current Liabilities are generally your Accounts Payable, your credit card balances, and any other payables like the sales tax you will need to make in the next 12 months.
Calculate your Current Ratio and see how strong your working cash flow is and how much risk your business is in as far as being able to meet your upcoming obligations.
If you have challenges in this area, call us – ZümiFi can help! And if your Current Ratio is 2:1 or more, start thinking about your cash reserves policy and how best to use your strong cash position…
Bookkeeping is the bread and butter of our business.
It’s also where we came from, what we love most, and what we’re best at. It does wake us up in the morning and make us smile when we begin to work! But bookkeeping in the cloud takes all of that joy a few levels higher by optimizing opportunities to automate data entry and connect the vast universe of various online tools that can synchronize seamlessly with your QuickBooks Online. ZümiFi is experienced in understanding each client’s needs, then making custom-designed recommendations that will truly move things forward to deliver great books.