6 ms·

Where do you propose a company with millions in cash keep that money if not a bank?

by mym1990 4y ago

tome 4y ago
My first suggestion would be as T-Bills. I've asked a lot of questions on HN in the past few days about this, and I'm still not sure why it was not standard practice. Why people in position of authority trust bank deposits after 2008 I do not understand.
- mcculley 4y ago
  It is standard practice for many businesses. Managing cash is a tedious reality that most have not had to face thanks to zero interest-rate policy.
  - dehrmann 4y ago
    What if there were companies that would manage cash for you? In all seriousness, you don't want small and mid-sized companies having to think about managing their cash. They have better things to be doing.
    - mcculley 4y ago
      What I want is irrelevant. Yes, there are companies (banks) and instruments that I use to help manage cash. I know that every time I have too much cash in one bank account, I am at risk. It appears some companies are learning this only now. I managed cash flow of my business through 2008. I worked through the recessions in the 90s and 2000s. When I was young, I worked for an employer who had seen banks fail in the Great Depression. He taught me not to trust a single bank. Nobody should. Yeah, it would be nice if we had a well regulated financial system.
- roflyear 4y ago
  If you're spending $500k a month on payroll it doesn't make sense to do that.
  - StopHammoTime 4y ago
    It absolutely does. You should have 3 months of cash in the bank always. The rest should be in cash equivalents or short term investments. This is why most company’s with payrolls like that have a person called a “Treasury Officer” who manages all that and makes sure the bank accounts are funded adequately. They should also spread that around between banks to ensure that in the case of an issue with one facility there are other facilities or lines of credit to cover short term needs. Anybody with more than $5 million in the bank should have someone dedicated to managing that money. If you don’t, then you’re not running a business properly. Startups like to skimp on important things like that and they shouldn’t. Any CFO with basic skills should be doing or arranging this depending on the size of the company. That’s literally their job.
    - rmilk 4y ago
      Exactly. Even a business checking account with interest is backed partly/fully by money market funds. Those ALL come with offering sheets clearly spelling out returns aren’t guaranteed AND you could lose capital. It’s simply poor money management by the employer to assume you can toss $1M-$5M in a business checking account and have zero risk. It’s not a personal account and it is clearly over the FDIC limits. Anyone with $250K net worth knows there is risk here. Even my 80+ mother who is NOT finance savvy knows about this $250k limit and manages her life savings in different money market accounts to limit her exposure.
- jasode 4y ago
  >My first suggestion would be as T-Bills. [...], and I'm still not sure why it was not standard practice. Corporations have always split their cash into cash and "almost-cash-equivalent" liquid assets (like Treasury Bills). E.g. one can read any random 10-k corporate filing and there will be a line item for short term assets like "T-bills" because companies like to earn interest on their excess cash. The corporate treasurer is responsible for managing that mix. But a company still needs working cash in the bank account for payroll and to pay vendors. The smaller startups may have not have enough excess cash to bother with splitting some of it into T-bills.
  - tome 4y ago
    > a company still needs working cash in the bank account for payroll and to pay vendors I also don't understand this. Why can't the working cash be a loan from the bank secured on the T-Bills? Then the depositor bears essentially no risk because they have no net balance with the bank. Essentially, why can't companies' working cash be overdraft? That way it's the bank that bears the risk rather than the companies. That's the whole point of the bank! I guess one downside is that the bank will apply higher funding charges for that kind of arrangement. Well, the depositors should suck it up. You have to pay a price for resilience. I guess there are other fine points of corporate finance that I have yet to grasp, but I'm learning a lot from the comments on HN. Thanks for your reply.
    - piva00 4y ago
      If everyone gets cash from loans, who'll be the depositors putting cash in the bank to be loaned?
      - JumpCrisscross 4y ago
        > who'll be the depositors putting cash in the bank to be loaned Loans create deposits, not the other way.
        kgwgk 4y ago
- grey-area 4y ago
  Isn’t that exactly what SVB did? (EDIT - see replies below for why it is not)
  - tome 4y ago
    No, SVB invested in long term T-Notes or T-Bonds, not short term T-Bills. T-Bills have much less interest rate risk, because they have a maximum 52-week term.
    - grey-area 4y ago
      Thank you, sorry I was not familiar with the diff between T-bills and T-Bonds, now I know!
  - Jtsummers 4y ago
    From what's been reported, SVB had money tied up in mortgage backed securities and T-Bonds (not bills) which take years to mature. T-Bills are different than T-Bonds. T-Bills mature in weeks up to 1 year (4, 8, 13, 26, 52 week terms). They're a good way to assign your money you can't risk (like next month's payroll) while still earning interest on it and having access to it when you need it.
    - grey-area 4y ago
      Thanks
tsimionescu 4y ago
If the company is large enough to need to hold millions in cash, multiple banks would be the simplest response.
mostertoaster 4y ago
I want my company to have a giant vault stacked with Benjamin’s. Every payday I come down and they shell it out and put it in my hand. Then a disgruntled but genius employee comes up with a crazy heist scheme and I get caught in the middle of it getting my pay one payday.
oarabbus_ 4y ago
Mostly treasury bills, some foreign currencies, and a small allocations to index funds probably.
dkga 4y ago
Multiple banks. There's one thing called counterparty risk and any firm with millions (or more) of US dollars in cash should have a function just to take care of this. But it seems a lot of tech firms' CFOs were sleeping at the wheel if it indeed transpires that all these firms were keeping their money all in one bank.

Where do you propose a company with millions in cash keep that money if not a bank?

tome 4y ago

My first suggestion would be as T-Bills. I've asked a lot of questions on HN in the past few days about this, and I'm still not sure why it was not standard practice. Why people in position of authority trust bank deposits after 2008 I do not understand.

mcculley 4y ago
It is standard practice for many businesses. Managing cash is a tedious reality that most have not had to face thanks to zero interest-rate policy.
- dehrmann 4y ago
  What if there were companies that would manage cash for you? In all seriousness, you don't want small and mid-sized companies having to think about managing their cash. They have better things to be doing.
  - mcculley 4y ago
    What I want is irrelevant. Yes, there are companies (banks) and instruments that I use to help manage cash. I know that every time I have too much cash in one bank account, I am at risk. It appears some companies are learning this only now. I managed cash flow of my business through 2008. I worked through the recessions in the 90s and 2000s. When I was young, I worked for an employer who had seen banks fail in the Great Depression. He taught me not to trust a single bank. Nobody should. Yeah, it would be nice if we had a well regulated financial system.
roflyear 4y ago
If you're spending $500k a month on payroll it doesn't make sense to do that.
- StopHammoTime 4y ago
  It absolutely does. You should have 3 months of cash in the bank always. The rest should be in cash equivalents or short term investments. This is why most company’s with payrolls like that have a person called a “Treasury Officer” who manages all that and makes sure the bank accounts are funded adequately. They should also spread that around between banks to ensure that in the case of an issue with one facility there are other facilities or lines of credit to cover short term needs. Anybody with more than $5 million in the bank should have someone dedicated to managing that money. If you don’t, then you’re not running a business properly. Startups like to skimp on important things like that and they shouldn’t. Any CFO with basic skills should be doing or arranging this depending on the size of the company. That’s literally their job.
  - rmilk 4y ago
    Exactly. Even a business checking account with interest is backed partly/fully by money market funds. Those ALL come with offering sheets clearly spelling out returns aren’t guaranteed AND you could lose capital. It’s simply poor money management by the employer to assume you can toss $1M-$5M in a business checking account and have zero risk. It’s not a personal account and it is clearly over the FDIC limits. Anyone with $250K net worth knows there is risk here. Even my 80+ mother who is NOT finance savvy knows about this $250k limit and manages her life savings in different money market accounts to limit her exposure.
jasode 4y ago
>My first suggestion would be as T-Bills. [...], and I'm still not sure why it was not standard practice. Corporations have always split their cash into cash and "almost-cash-equivalent" liquid assets (like Treasury Bills). E.g. one can read any random 10-k corporate filing and there will be a line item for short term assets like "T-bills" because companies like to earn interest on their excess cash. The corporate treasurer is responsible for managing that mix. But a company still needs working cash in the bank account for payroll and to pay vendors. The smaller startups may have not have enough excess cash to bother with splitting some of it into T-bills.
- tome 4y ago
  > a company still needs working cash in the bank account for payroll and to pay vendors I also don't understand this. Why can't the working cash be a loan from the bank secured on the T-Bills? Then the depositor bears essentially no risk because they have no net balance with the bank. Essentially, why can't companies' working cash be overdraft? That way it's the bank that bears the risk rather than the companies. That's the whole point of the bank! I guess one downside is that the bank will apply higher funding charges for that kind of arrangement. Well, the depositors should suck it up. You have to pay a price for resilience. I guess there are other fine points of corporate finance that I have yet to grasp, but I'm learning a lot from the comments on HN. Thanks for your reply.
  - piva00 4y ago
    If everyone gets cash from loans, who'll be the depositors putting cash in the bank to be loaned?
    - JumpCrisscross 4y ago
      > who'll be the depositors putting cash in the bank to be loaned Loans create deposits, not the other way.
      - kgwgk 4y ago
grey-area 4y ago
Isn’t that exactly what SVB did? (EDIT - see replies below for why it is not)
- tome 4y ago
  No, SVB invested in long term T-Notes or T-Bonds, not short term T-Bills. T-Bills have much less interest rate risk, because they have a maximum 52-week term.
  - grey-area 4y ago
    Thank you, sorry I was not familiar with the diff between T-bills and T-Bonds, now I know!
- Jtsummers 4y ago
  From what's been reported, SVB had money tied up in mortgage backed securities and T-Bonds (not bills) which take years to mature. T-Bills are different than T-Bonds. T-Bills mature in weeks up to 1 year (4, 8, 13, 26, 52 week terms). They're a good way to assign your money you can't risk (like next month's payroll) while still earning interest on it and having access to it when you need it.
  - grey-area 4y ago
    Thanks

tsimionescu 4y ago

If the company is large enough to need to hold millions in cash, multiple banks would be the simplest response.

mostertoaster 4y ago

I want my company to have a giant vault stacked with Benjamin’s. Every payday I come down and they shell it out and put it in my hand. Then a disgruntled but genius employee comes up with a crazy heist scheme and I get caught in the middle of it getting my pay one payday.

oarabbus_ 4y ago

Mostly treasury bills, some foreign currencies, and a small allocations to index funds probably.

dkga 4y ago

Multiple banks. There's one thing called counterparty risk and any firm with millions (or more) of US dollars in cash should have a function just to take care of this. But it seems a lot of tech firms' CFOs were sleeping at the wheel if it indeed transpires that all these firms were keeping their money all in one bank.