--- title: 4 Steps for Prioritizing Available Cash description: Designating available cash with precision and intention is critical to the health of a business. Whether a company is enduring a cash shortfall or enjoying a season of plenty image: https://blog.gehmanaccounting.com/hubfs/insightfeatureimage-01.jpg --- [![Gehman_logoAccountingWebsiteCOLORsmall](https://blog.gehmanaccounting.com/hs-fs/hubfs/Gehman_logoAccountingWebsiteCOLORsmall.png?width=351&height=75&name=Gehman_logoAccountingWebsiteCOLORsmall.png "Gehman_logoAccountingWebsiteCOLORsmall")](https://www.gehmanaccounting.com/) # Gehman Accounting Blog # 4 Steps for Prioritizing Available Cash [Verlon Miller](https://blog.gehmanaccounting.com/author/verlon-miller) *-* Mar 18, 2021 10:02:08 AM [0 Comments](https://blog.gehmanaccounting.com/4-steps-for-prioritizing-available-cash#comments-listing) - [Tweet](https://twitter.com/share) Designating available cash with precision and intention is critical to the health of a business. Whether a company is enduring a cash shortfall or enjoying a season of plenty, the use of available cash can either advance the company or hinder its success. We must be intentional with the funds available in a company. While a lack of funds demands that we become intentional with cash on hand, managing the discretionary funds (funds not designated for a specific purpose) is equally critical to protect the company’s cash flow needs. Once we realize that available cash has a designated purpose, we will no longer view it as discretionary funds to be spent on a whim. In this article, I suggest a sequence for prioritizing cash that can help a company accomplish two objectives: 1) Maintain company operations while building a cash reserve. 2) Target the elimination of debt obligations. The following sequence should be used to prioritize available cash:![insight - binoculars - AdobeStock_228295718](https://blog.gehmanaccounting.com/hs-fs/hubfs/2019%20Website%20Photos/insight%20-%20binoculars%20-%20AdobeStock_228295718.jpeg?width=400&name=insight%20-%20binoculars%20-%20AdobeStock_228295718.jpeg) 1. Pay current bills/accounts payable/payroll down to zero 2. Pay the line of credit down to zero 3. Build a modest cash reserve (3-6 months overhead) 4. Pay off loan amounts entirely to eliminate monthly payments Each number in the sequence is explained in more detail below. 1. **Current obligations** must be met for the company to continue functioning. These are a priority before other obligations and include all operational expenses such as payroll, payments to vendors, debt payments, utilities, and insurance. Cash must first be directed towards current obligations if the company is to remain open and functional. 2. The **line of credit** is the available cash source for needs in the company. Paying it down to zero allows the maximum cash to be available if a need arises in the future. Repayment of the line of credit should take priority over making additional long-term debt payments. 3. A **modest cash reserve** allows a company to function without going back into the line of credit and protects against any negative cash flow cycles. Saving enough cash for 3-6 months of overhead expenses gives sufficient cushion for a company to adjust its business model if a prolonged downturn in business occurs. 4. While **eliminating debt** is certainly the goal, paying off a portion of debt without retiring it completely, will tie up operating cash without removing the payment obligation. From a cash flow perspective, the goal of paying off a loan is to remove the monthly payment and free up that cash for other purposes. By managing and prioritizing the cash flow in a healthy business, a business owner can provide the cash needed for operations and pave the way for a successful, less stressful future in the company. Topics: [Advising](https://blog.gehmanaccounting.com/topic/advising)*-* [Economy](https://blog.gehmanaccounting.com/topic/economy)*-* [Guidance](https://blog.gehmanaccounting.com/topic/guidance) ![Verlon Miller](https://blog.gehmanaccounting.com/hubfs/Verlon.2020.jpg) ### [Verlon Miller](https://blog.gehmanaccounting.com/author/verlon-miller) Verlon Miller works as a Business Advisor for Gehman Accounting from his home office in Athens, TN. He and his wife have 5 children and count it a joy to have raised them in the beauty of the southern Appalachians. He has 20+ years’ experience in sales and customer service and enjoys working with his clients to improve their profitability. Previous Post ### [Tips and News for 1099s](https://blog.gehmanaccounting.com/tips-and-news-for-1099s) Next Post ### [State of Business in 2022](https://blog.gehmanaccounting.com/an-open-conversation-about-business) #### 0 Comments ### GEHMAN ACCOUNTING BLOG #### Subscribe To Stay Informed The Gehman Accounting Blog provides small business owners with information and resources to sustain and grow their businesses. With a focus on financial stewardship, team building, entrepreneurship, economic insights, and tax news, these articles seek to inspire confidence in today's business world. ### Subscribe to Email Updates 100% Privacy. No Spam. ![Gehman Accounting Logo - Horizontal - White](https://blog.gehmanaccounting.com/hs-fs/hubfs/Gehman%20Accounting%20Logo%20-%20Horizontal%20-%20White.png?width=436&name=Gehman%20Accounting%20Logo%20-%20Horizontal%20-%20White.png "Gehman Accounting Logo - Horizontal - White") The Gehman Accounting team takes time to get to know you and understand your business. We work with you on solutions you need, whether that's expert business advising, software, accounting services, bookkeeping, tax prep, payroll services or help with a new business startup. #### Useful Links #### Contact Us Have questions? Get in touch. 180 Diller Ave., New Holland, PA 17557 [(717) 354-8288](tel:717-354-8288) [office@gateam.com](mailto:office@gateam.com) #### Social Media [![](https://blog.gehmanaccounting.com/hubfs/Deurali/facebook.png)](https://www.facebook.com/gehmanaccounting) [![](https://blog.gehmanaccounting.com/hubfs/Deurali/LinkedIn.png)](https://www.linkedin.com/in/gehman-accounting-116773211/) [![](https://blog.gehmanaccounting.com/hubfs/Deurali/Instagram.png)](https://www.instagram.com/gehmanaccounting/)