Keep cash, or put it to work?
Cash in the bank saves a business in a bad month, and shrinks a little every year it sits there.
Cash is king
Keep money in the bank.
A business can show a profit and still shut down if the cash runs out. Money in the bank is what pays this month’s salaries.
- Right when
- When the money may be needed soon: for salaries, rent, a slow season or a client who pays late. Cash you can reach today keeps the doors open.
- For example
- A bakery keeps ₹3 lakh in its current account, two months of rent and wages. When its biggest catering client pays 60 days late, the ovens keep running and nobody’s salary waits.
- Wrong when
- When the pile sits untouched for years, far beyond any bill it could ever need to pay.
Inflation
Idle cash quietly loses value.
Prices creep up every year. At 6% inflation, ₹100 kept under the mattress buys only about ₹56 worth of today’s things after ten years.
- Right when
- When the money won’t be needed for years. Left as cash, it buys a little less every year. Invested, it has time to grow faster than prices.
- For example
- ₹10 lakh left in a current account for ten years, at 6% inflation, buys what about ₹5.6 lakh buys today. The same ₹10 lakh growing at 10% a year becomes about ₹26 lakh.
- Wrong when
- When the money is locked away just as a bill falls due, and the investment has to be sold in a bad month.
What decides it
When might you need this money?
Money you may need within the next year, for salaries, rent or a slow season, belongs where you can reach it tomorrow, even if it shrinks a little. Money you won’t touch for years should be working, because over that long, inflation’s slow leak adds up. Most businesses do both: a cushion for the bad months, and the rest put to work.
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