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Is Your Company Sitting on Excess Cash?

It seems like a great problem to have: business is going well and you have built up solid cash reserves. The ideal is to maintain liquidity, but also generate some yield on that money. It’s great that it is there, but you also want to put it to work for your business in a way that is accessible and avoids unnecessary risk.

You don’t want to take your eye off the main focus of your business, but you’ve got to manage the assets your business has built up. The big question is … how?

For multi-national corporations, they have an entire department devoted to this cash on hand. This unique role is called Corporate Treasury.

This is the beginning of a series of articles we wanted to share with you about the role of Treasury and how small and mid-sized companies can use the same principles used by enterprise-level treasury departments.

Here are a few strategies we’d like to explore and delve into to help you understand your options for putting that money to work and stop hoarding that cash under the proverbial corporate mattress.

1. Savings

Ideally, a business will have 90-180 days of monthly expenses on hand in the bank. That’s not hoarding cash, it’s just being prudent. You should be developing a rule of thumb to determine what percentage of cash needs to be held in checking and in savings. Beyond this, how do you start leveraging savings so you are earning a return on this money? Read on!

2. Brokerage Investment Account

Corporate Treasury departments are working with brokerage or investment accounts registered in the businesses name, and it might just make sense for your business too. A brokerage account is invested in liquid holdings, the investment line up is geared to limit downside from market swings but try to outperform a savings account or CD. You can utilize professional money managers that specialize in these strategies. The brokerage fees are tax-deductible for your business, with ACH transfer capability between the brokerage account and your business checking account to maintain corporate liquidity and ease of moving money back and forth if need be.

3. Uncommon Banking

As a business owner, you can use a whole life insurance policy to protect not just your family but your business. This is a tax-sheltered asset with the cash value remaining liquid. We call it Uncommon Banking because you can take out a loan while still earning interest on the entire cash value. It also adds death benefit protection for on-going operations, protecting a loved one and/or ensuring liquidity for the next generation.

4. Cryptocurrency

None of these plays are about putting all your eggs in one basket, and cryptocurrency is no different. It can be an appealing place to grow some of the assets you have on hand. Crypto banks offer higher rates of interest, as well as instant, 24/7 liquidity. More and more corporate treasuries are adding crypto to the company portfolio.

5. Debt Elimination

A smart strategy for debt elimination is another way corporate treasury can prudently utilize the excess cash your business is carrying right now.

6. Business Acquisition

Are there complementary businesses, competitors or similar businesses that you could purchase to grow? We help business owners evaluate purchases of other entities and looking at cash-flows, equity, and deal construction to purchasing other businesses as a way to grow your wealth. With the average age of many business owners in the mid-50’s or higher, in addition to economic and geopolitical instability, there are many opportunities to purchase additional businesses to grow and utilize excess cash reserves.

7. Commercial Real Estate

How well are you using the space where you do business? Are there ways to leverage your cash on hand, and generate even more cash flow? Yes, there are, by creating another asset for you as the business owner and additional cash flow through renting space, and even paying rent to a separate entity – you. This creates not just cash-flow but another asset to sell when you sell the business.

Why do you need to think like a Treasury Department and mobilize around one or more of these strategies? Because you want to be able to access these cash reserves when needed and excess cash on a balance sheet that isn’t reinvested somewhere is just not a good look.

We remain in a low-interest-rate environment. We are living in macroeconomic uncertainty. Inflation and currency debasement are ever-looming threats to your cash assets. In this article series, we’ll be exploring the role of Treasury in more detail and breaking down the 7 areas where your cash on hand can work for you.