Cash and cash equivalents (CCE) is a critical part of a wholesale business’ financial picture. In this blog, we’ll explain what CCE is and why it’s important.

What is Cash and Cash Equivalents (CCE)?

CCE is the liquid or easy-to-liquidate assets a company has readily available access to. A company carries a balance of CCE to pay its bills, such as payroll or rent, to mitigate its business risk, and to take advantage of opportunities. CCE is a crucial component of a company’s financial health and security and is found on a company’s balance sheet under the current assets section.

CCE is also commonly known as cash on hand. CCE is composed of two parts: cash and cash equivalents.

Cash

In the context of CCE, what does cash include? It is what it sounds like: cold, hard cash. This can either be physical cash in bills, coins or legal tender that’s likely stored in a safe, safety deposit box, or till. Or, it can be money in a bank account. However, if the money is in the bank it needs to be easy and accessible to withdraw. Like in a chequing or savings account. Also included under the ‘cash’ category are certified cheques, bank drafts, and money orders.

Cash Equivalents

Cash equivalents generally include anything that can be liquidated into cash quickly and easily. In general, cash equivalent investments should have a maturity of around 90 days and be easy to sell on the market so a company can do so in a pinch. Additionally, cash equivalent investments should have a stable and predictable value. If your company needed to access its CCE, you’d want to avoid the unfortunate situation that your investment is suddenly worth much less than you had counted on.

CCE/cash on hand vs. Petty cash

Some people might mistake CCE for petty cash, but the two are different. CCE is an important part of a business’s overall financial picture. It reduces risk and allows for effective cash flow in and out of the business.

Petty cash is more of an operational tool for minor business transactions. The use of petty cash is most common in businesses that have frequent transactions. If you’re often paid in cash by your customers, you’ll keep a floating amount of cash in a till or safe in order to provide change. Or, if you make frequent smaller cash payments to suppliers, you may leverage petty cash.

Why is maintaining good CCE important?

Maintaining a healthy amount of CCE is important for wholesale businesses. Whether you’re looking to grow your business, expand to new markets or service new sectors, CCE can help provide the security needed to mitigate risk or take on new opportunities.

1. CCE is important for financial well-being

Since CCE exists on the current assets portion of the balance sheet, it’s important to have CCE to help offset liabilities. If your company has far more liabilities than assets, you’re at risk. It’s also viewed as negative by lenders or investors, potentially limiting your ability to access additional funds to help your business grow.

2. CCE helps you stay clear of bad financial situations

While CCE is not exactly the same as the cash reserves that many large firms keep as an emergency fund in case of trying times, your CCE can help you get out of a sticky situation. In the wholesale industry, especially for food and beverage wholesalers, margins can be tight. So if revenue falls flat, you may need additional funds to keep your business afloat until you can get revenue on the upswing again. A CCE can help ensure you can meet your bills and payroll while you recover your sales numbers.

3. CCE can help you take advantage of opportunities

As a business operator, you want to be well-positioned to take advantage of opportunities as they come your way. Having all your money tied up in liabilities or long-term investments can make it difficult to liquidate cash fast enough to take advantage of short-term opportunities. Having a good amount of CCE ensures you have access to cash if you need it, when you need it.

Want to learn more about assets and liabilities?

Read Is Accounts Receivable an Asset? What You Need to Know