Definition
Cash on hand is the cash that a business can easily access at any time after paying for its expenses. This could include assets that are easy to liquidate under 90 days. It does not cover funds that the business cannot spend or use.
Example
Cash on hand can include actual cash, cash in bank accounts, and easy-to-liquidate assets. A company must keep a tab on how much cash on hand it should set aside, depending on factors such as business model being followed. It is ideal for a business to have cash equivalent of three to six months worth of expenses.
Why it matters
Cash on hand is essential for smooth business operations. It can help cover all of the company’s operating expenses in case of a business slowdown. For a new business especially, it may be difficult to predict business seasonality. Therefore, it's important to have sufficient cash on hand for covering business expenses.