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How Should You Manage Corporate Savings or Cash?

In our conversations with business owners, a topic that keeps coming up is how to manage excess cash on hand. While we have a lot to say about how to manage the profits of your business, the obvious starting point is savings. How much should you have on hand, and what should it be earmarked for?

The challenge with corporate savings is the same as personal savings. The bank will give you a little bit of interest, but not much. But some interest is better than none, and you do need cash on hand in an account that is safe from market volatility and accessible 24/7. So shop around for a good interest rate on the savings for your business.

How Much Cash on Hand is Enough?

Cash reserves are crucial. A good rule of thumb is to have 90-180 days of monthly expenses on hand in the bank. This includes payroll, rent, accounts payable to vendors, and debt payments—all the stuff that goes into running the business day-to-day. Don’t forget, you also need to account for what you are withholding from employees’ paychecks for payroll taxes, including FICA, social security, and Medicare. These withholdings and payments that happen monthly or semi-weekly, need to be a part of those 90-180 days of cash reserves.

And even though money can be moved quickly, you should determine what percentage of cash needs to be held in checking versus being set aside in the savings account. Having an accounting and bookkeeping system that also shows your weekly, monthly, and quarterly net cash-flow and net income is critical, so you can quickly see whether your cash on hand is growing or shrinking.

Savings and Beyond

This is really the no-brainer step when it comes to excess cash in your business. How do you move beyond savings and start to put this extra cash to work for you and your business? That’s what we want to explore in the following weeks, so stay tuned. We’ll be exploring how to use everything from a brokerage account to real estate you already own to manage and build on the cash you have on hand in your business.

Who should you put in charge of managing your savings and beyond? Should it be you as the business owner or the CFO? If you’re thinking it should be you, that might be the right choice but keep in mind that you probably have your hands full already. And while the strategic goals should be squarely in your hands as a sole owner or business partner, implementing that strategy can add too much to anyone’s job description.

In an earlier article, we described the role of a Corporate Treasury Department that is a part of the org chart in most multi-national companies. But what about a smaller-scale operation? If it’s too much for the C-suite to take on, what is the answer? With that article, we wanted to help you understand the role and the strategies that Treasury can implement, and explore your options besides adding another FTE to the employment rolls.

But it all starts with a smart plan for savings and keeping enough cash on hand to handle the day to day and account for the ups and downs of your market. If you want more information on the offerings that we are providing to business owners right now and are available to you click here.