Managing Cash Surpluses

One of the simplest shifts I teach SMB owners: segment your cash into 3 buckets. Here’s why... “Do we have enough cash in the bank?” is the wrong question to manage your liquidity. One unexpected event, a delayed customer payment, a downturn, an acquisition opportunity, and you’re exposed. That’s why we coach clients to build a tiered liquidity strategy: 1. Operating cash. This is the cash you need to run day-to-day operations. It covers payroll, rent, vendors, taxes. We typically advise keeping at least 1–2 months of expenses here. Too little and you’re constantly stressed. Too much and you’re leaving money idle. 2. Emergency reserves. This protects against shocks: a major customer defaults, sales slow down, market shifts. For most SMBs, 3–6 months of fixed costs is a good target. 3. Strategic cash. This is your “offense” layer. Funds set aside for opportunities: buying a competitor, launching a new product, hiring a key executive. You’d be surprised how many companies miss out on great opportunities because they lack strategic liquidity. The key is to be intentional. Most businesses mix all their cash in one pile. That makes it hard to know what’s truly available for growth vs. survival. Segment it. Know your numbers. Build discipline around each tier. The companies that do this not only sleep better at night. They also move faster when opportunity knocks. Liquidity isn’t about having cash. It’s about having the right cash in the right place.

Managing Cash as a Cash Management solution provider: "Shoemakers' children have the worst shoes", or so they say... Recently, I discussed the challenges we faced in mastering our cash management, even as a cash management solution provider. In this post, I want to highlight the exceptional work of Quentin M. and his team in improving our surplus cash management through a mix of short-term and long-term investments. By striking a balance between short-term (3 days to 8 weeks) and long-term (2 months onwards) investments, we maintain the flexibility needed to fuel our ongoing investments in R&D and expansion, while simultaneously securing attractive long-term returns. Let me share quickly what their routine looks like. ➡ Short-term Investments The Finance team uses Agicap's short-term cash management view daily to monitor current cash balances and expected transactions per bank account. Their daily routine includes: 1️⃣ Ensuring the reliability of expected transaction data. 2️⃣ Making internal movements to secure incoming payments for the next 2-3 days. 3️⃣ Identifying cash excess in current accounts for potential investments. 4️⃣ Investing in or withdrawing from short-term investment instruments: - Interest-bearing deposit accounts / Savings accounts - currently ~4%. - Short-term oriented corporate bonds issued by our banks (UCITS) -currently ~3.8-4%. ➡ Long-term Investments Our long-term investment strategy is based on our cash flow plan and forecasts, which rely on both actuals and business plan assumptions. We identify cash excess for the next 2 to 12 months and apply a safety margin of ~10% to ensure we can handle uncertainties and short-term expenses. Twice a month, Quentin reviews our current investments and market trends: 1️⃣ Re-assessing current rates and forwards to identify better investment opportunities. 2️⃣ Re-evaluating maturing investments with two options: a) continue in our current investment b) re-invest in other vehicles. Our cash is primarily invested in fixed-term deposit accounts with fixed or variable rates (EURIBOR), depending on the context (currently averaging ~4%). At Agicap, we prioritize liquidity and avoid taking unnecessary risks: 1. We diversify our investments across all our main banks to mitigate counterparty risk (bank default). It also allows us to have competitive offers from our banks (rates, fees, minimum amounts, duration, etc.). 2. We do not invest in terms exceeding 12 months : - Due to our fast growth mode, our detailed business plan and associated cash forecasts do not exceed 12 months. - We require a high level of flexibility, so all our investments are liquid within 32 days. Maxence Gazelle Emmanuel C. Florent Vimort

I watched $200K sit in checking for 18 months, and it earned basically nothing. The move that fixed it took 20 minutes and changed how I think about surplus cash. If there’s extra operating cash sitting around, I’m a big fan of parking it somewhere that earns something but stays liquid.  A high-yield money market or an investment account does that.  You’re getting interest, but the cash is still there if you need it for hiring, an acquisition, or to reinvest back into the business. Leaving it in a low-interest checking account is basically doing nothing. The money just sits there while inflation does its thing. I think a lot of people overthink timing.  Compounding matters more.  Getting the cash working, even a little, and doing it consistently usually beats waiting for the perfect moment. Same idea with retirement.  Get the 401(k) match, automate contributions, and put some guardrails in place so you don’t panic when markets drop. Those basics carry a lot of weight. Early on, I remember leaving cash idle because I didn’t want to make the wrong move. What I learned pretty quickly is that doing nothing was the wrong move.  Once I set up something simple and automated, it stopped being a daily decision and started working in the background.

In 2019, I worked at an accounting firm that showed me a completely different way of thinking about business finances.. Especially when it comes to cash reserves: You can be profitable on paper and still go under. My advice to clients is to keep between 2-12 months of operating expenses in their business accounts as a baseline. An exact number will depend on: • Your risk tolerance • Your industry • Your overall business outlook • Your growth plans • Your operating expenses For most businesses, 6 months is usually a safe middle ground. Once you establish your baseline number, the strategy is simple: • Keep that baseline amount in your account • Distribute any excess monthly or quarterly • Adjust the baseline as your business grows This system works because it provides security and opportunity. Solid cash reserves mean unexpected expenses don't derail your plans. No decisions based on panic or fear, and when opportunities come up, you have the cash to take advantage of them. And you maintain predictable owner distributions while knowing there's a safety net. That's worth more than any interest you might earn by keeping your reserves razor-thin.

The Cash & Liquidity Management Cheat Sheet. We know that cash and liquidity are the core of every business that's why I've spent hours summarizing the 10 essentials every Treasury & Finance leader must know: 📌You'll want to save this. 1. Cash Management: Monitor, collect, manage & invest cash. ➔ Collection (faster invoicing & payments) ➔ Concentration (consolidate idle funds) ➔ Disbursement (strategic timing of outflows) 2. Cash Conversion Cycle (CCC): Formula: CCC = DIO + DSO – DPO ➔ Shorter CCC = stronger liquidity. 3. Liquidity vs Solvency Liquidity = meet short-term obligations. Solvency = long-term sustainability. ⚠️ A solvent company can still fail if cash isn’t liquid. 4. Role of Treasury Tactical → Daily positioning & short-term forecasts. Strategic → Long-term planning, funding, advisory. 5. Cash Visibility Challenges: Multi-bank delays, FX restrictions. Opportunities: SWIFT GPI, Open Banking, Treasury Management Systems (TMS), AI-powered forecasting. 6. Working Capital Optimization Receivables: Target DSO < 45 days. Use discounting, factoring, credit insurance. Payables: Target DPO > 45 days. Use supply chain finance. Inventory: Target turnover > 6x (Retail or FMCG). Use EOQ & demand forecasting. 7. Cashflow Forecasting Direct (1–13 weeks): Operational planning. Indirect (1–12+ months): Strategy & funding. Best practice: Maintain a 13-week rolling forecast (it covers a financial quarter). 8. Managing Liquidity Shocks ➔ Maintain 6–8 weeks liquidity buffer. ➔ Diversify credit lines. ➔ Use scenario modeling & real-time dashboards. 9. Cash Pooling & Centralization Physical pooling: Actual cash sweeps. Notional pooling: Virtual aggregation. Benefits: Lower costs, centralized control, FX efficiency. 10. Intercompany Lending & Regulations Must comply with transfer pricing regulations. Benchmark: SOFR, local rates + spread (or as applicable in your region). Regulations: Ensure full compliance. Next Steps for YOU ➔ Real-time visibility across all entities. ➔ Centralized efficiency + local compliance. ➔ Use both direct & indirect forecasting. ➔ Utilize digital tools & fintech. ➔ Ensure compliance with tax & transfer pricing rules. So, even if you’re a CFO, Treasurer, or Finance Leader, this cheat sheet helps you strengthen liquidity, optimize cash, and ensure resilience in any market. ♻️ Repost & Share. 📌 Use as your "screensaver".

Let's talk Cash! After 50+ portfolio reviews this year alone, I can confidently say that #CashManagement is one of the most overlooked areas of #FinancialPlanning. Here's the headline: - Too much cash in checking = you're eroding your buying power due to #inflation. - Too little cash set aside = you're a forced seller when the unexpected hits you (e.g., home repair, tax liability, or a last minute destination wedding). There's no one size fits all for cash management, but this framework works pretty well for most people: 1. #Checking: just enough for monthly expenses + a small cushion to avoid overdraft. 2. #Savings: 3-6 months of expenses in a high-yielding cash account above the rate of inflation for emergency/unforeseen expenses (e.g., HYSA, Money Market fund). 3. Anything else? Consider putting it to work – #Equities for growth, #FixedIncome for stability over 1yr periods, CDs/T-Bills for expenses within 6-12 months. With #rates where they are today, and potentially where they are headed, now might be the right time to revisit your Cash position. Feel free to reach out if you'd like to discuss, or drop a comment if you agree/disagree. Disclosure: Merrill, its affiliates and financial advisors do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Managing your investments and cash flow in retirement requires a strategic approach. My recomended key strategies: - Close your bank checking account and utilize a Cash Management Account (CMA) to earn yield on idle funds. - Use a cash back credit card and deposit the rewards into your CMA. - Structure your investment accounts wisely: hold higher risk securities in a Roth IRA, which should be depleted last, while using a taxable brokerage account with lower risk securities for initial withdrawals. - If your traditional IRA significantly exceeds your Roth IRA, consider converting dollars to Roth annually until Required Minimum Distributions (RMDs) begin. - Maintain 3-5 years of cash flow needs in safe money market funds to avoid drawing down on investments during severe market corrections. - Automate your cash flows through ACH and establish rules at your brokerage firm, allowing you to relax and enjoy your retirement!

How much cash should your DTC brand hold? Most founders answer this based on a gut feel instead of strategic capital allocation principles. Here are 4 strategic cash management lenses I use with clients: 1. Opportunity Cost of Capital Cash sitting in your bank account isn’t “safe”—it’s idle. Where else could that capital generate a higher risk-adjusted return? Inventory expansion? Paid acquisition? New product lines? Or outside the business entirely? The clearer those alternatives are, the more intentional you should be about deploying (or distributing) cash. 2. Founder Risk Tolerance This one’s personal but very important Higher risk tolerance → less cash buffer needed Lower risk tolerance → more cash as protection There’s no “right” answer here—just alignment with how you operate under pressure. 3. Business Risk Profile How predictable is your business? Stable, repeatable cash flow → less need for excess cash Volatile, uncertain performance → more cash cushion Uncertainty = risk. Risk = need for liquidity. 4. Balance Sheet Structure Debt vs. equity in your capital structure matters more than most founders realize. More equity / retained earnings → more flexibility to pull cash out More debt → more responsibility to keep cash in Cash is what protects your ability to service debt when things don’t go as planned. There’s more nuance to this, but these 4 perspectives will get you 80% of the way there. If you’re not thinking about cash this way, you’re likely either: Holding too much and limiting compound growth. Or holding too little and increasing risk. A strong fractional CFO helps you make this decision strategically, not emotionally. If you don’t have one and want to see how we think about it at Free to Grow CFO, shoot me a DM.

A lot of entrepreneurs have asked me: How much money should I keep in reserves? Enough for stability, but not so much that it kills growth. The problem with too much surplus? Complacency. If excess cash is just sitting in your current account, you’re not running a business. You’re running a savings plan. Money in your pocket will get spent. The more accessible it is, the easier it is to justify office upgrades, fancy tools, or some "nice-to-have" initiative that adds zero value. That’s how businesses burn through funding and end up back at square one. Instead: Keep only a month’s worth of running balance. Enough to operate, not enough to get comfortable. Lock the rest away. Investments, FDs, anything that makes you think before touching it. Name your cash. Growth capital, innovation capital, operational capital—each has a job. Don’t mix them up. Raise debt, not burn reserves. Debt builds credibility. Paying it off builds reputation. Still hoarding cash for a "rainy day"? Well, it rains every damn day in business.