Managing cash, the essential fuel of your business

Learn more about how to strike the right balance with your business’s cash management.

It’s important for your business to have cash on hand to meet everyday expenses, pay salaries and suppliers, invest in new equipment, real estate or technology, fuel growth and expansion – and manage unexpected expenses and economic downturns.

Cash can offer a buffer in times of stress or opportunity, so you want to manage it well. Generally speaking, you should have enough cash to cover between two and six months of operating expenses. It may also be smart to have a line of credit available – just in case.

Striking the right balance

There’s a balance between having too much cash and not enough. If your business is holding too much cash, you could be missing out on opportunities to invest it and potentially generate additional earnings. Conversely, with an inadequate supply, you may have to borrow and pay interest, or sell off assets.

Don’t confuse profit with cash flow

You can’t accurately measure your cash flow by simply studying your profit and loss statement. Many factors must be assessed, including accounts receivable and payable, capital expenditures, inventory and taxes. Your financial advisor can help you assess your cash flow in conjunction with your accountant.

How can a business put its cash to work?

CDs offer higher yields than savings accounts, but you may have to tie up your savings until they reach maturity. Money market mutual funds typically have a lower earning potential, but may offer easy access to your savings – so you can make quick adjustments when rates change.

You might want to also consider a securities based line of credit. You can use the borrowing power of one or more personal or business brokerage accounts to establish a loan. Approval is typically done in just days, with streamlined underwriting, and there are no upfront, maintenance or closing costs. There are flexible repayment options, as well.  

Next steps

• Account for cash on hand and conduct a cash flow forecast.
• Work with your financial advisor to strike a balance between cash and credit to leverage the advantages of both.
• Ask your financial advisor about how to access liquidity to help you and your business.

Investments or strategies mentioned may not be suitable for all investors. Past performance may not be indicative of future results. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. CDs offer FDIC insurance and a fixed rate of return whereas both principal and yield of investment securities will fluctuate with changes in market conditions. Money Market Funds: Although fund managers strive to maintain a stable net asset value, the funds are not federally insured and there is no guarantee that a stable net asset value will be maintained. Certain funds may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors.

A securities based line of credit (SBLC) may not be suitable for all clients. The proceeds from an SBLC cannot be used to purchase or carry margin securities, variable insurance products or any insurance product issued or brokered through an affiliate of Raymond James. Raymond James Bank does not accept RJF stock or any securities issued by affiliates of Raymond James Financial as pledged securities toward an SBLC. Borrowing on Securities Based Lending products and using securities as collateral may involve a high degree of risk including unintended tax consequences and the possible need to sell your holdings, which may lead to a significant impact on long-term investment goals. Market conditions can magnify any potential for loss. If the market turns against the client, he or she may be required to quickly deposit additional securities and/or cash in the account(s) or pay down the loan to avoid liquidation. The securities in the Pledged Account(s) may be sold to meet the Collateral Call, and the firm can sell the client’s securities without contacting them. A client is not entitled to choose which securities or other assets in his or her account are liquidated or sold to meet a Collateral Call.