Understanding cash and retained earnings can be confusing. These earnings in a business are not equal to cash, this is money in the bank. Just because an Idaho company has kept profits in the business over the years does not mean that all of these profits have been retained in the form of cash.
After an Idaho company earns a profit it may take that cash and purchase assets or pay off some of its liabilities (expenses, loans, bills etc.). Business owners often assume that they are doing well because they are making profits without considering the amount of cash they have at their disposal. If they do not have sufficient cash, they will find themselves in dire since they may not be able to make the payroll, pay their taxes or general bills.
- It is essential that businesses have a good cash management plan.