Cash Reserves KPI; Indicate how many days your business could last if the income suddenly dried up.

Formula: [Cash & Bank Balances] / (([Annual Expense (non COGS)]-[Non Cash Expenses]) / 365))

Importance: Offers a good indication of the strength of your cash position. It will tell you more than the Cash Balance itself.

Note:

1. Cash & Bank balances means the cash in hand, FD, Bank Balances or petty cash.
2. Non cash expense refers to items/expenses that are not cash in nature, for example depreciation of deferred tax.
3. There is no ideal answer here, some may say 90 days cash reserves is comfortable while others may say 180 days. The reality is that many small businesses survive on much less, most probably less than 30 days. It can be done but it’s hard and you need to constantly monitor your cashflow.
4. This KPI will help to manage your cashflow as well.

Now that we have covered almost all the asset related KPI, tomorrow our journey will focus on the other side of the world (Liability related KPI).