Strike a balance with your business’ cash management
Managing cash reserves isn’t just about having money on hand. It’s about aligning those balances with your business’s needs. Think about what the right level of liquidity looks like for your business. For example, do you have enough available to handle unexpected expenses or take advantage of opportunities? Are you setting aside funds for planned investments or potential risks?
Cash can offer a buffer during periods of stress or opportunity. Many businesses aim to maintain reserves that could cover between two and six months of operating expenses, so something more strategic than petty cash for incidentals. Managing these reserves well can make a big difference for your business. It may also be wise to have a line of credit available — just in case.
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 unexpectedly and pay interest or sell off assets.
Cash is the essential fuel for your business, and cash flow forecasting helps you manage it effectively, anticipating when money will be coming into your business and when it will need to go out. However, it takes more than studying your profit and loss statement to accurately measure your cash flow. Many factors must be assessed – including accounts receivable and payable, capital expenditures, inventory and taxes – to provide a clearer picture of whether you’ll have the liquidity you need to meet obligations, make investments or navigate periods of uncertainty.
There are several forecasting methods but, generally, you’ll want to analyze your business’ historical data to establish a baseline, while tracking incoming and outgoing cash daily to get a clear current picture. A short-term forecast, often covering the next 13 weeks, can be especially helpful for day-to-day cash management, while longer-term forecasts support strategic planning and growth decisions.
Regular forecasting can help you identify potential shortfalls before they become urgent, plan for large expenses such as taxes or equipment purchases, and account for any seasonality. It can also highlight opportunities to put excess cash to work more strategically rather than letting it sit idle.
You might want to consider a securities based line of credit (SBL), which can be a way of expecting the unexpected by allowing you quick access to funds when unforeseen needs or opportunities arise. An SBL allows you to use the borrowing power of one or more personal or business brokerage accounts to establish a loan. For business owners, this can offer access to liquidity without having to sell investments, helping you avoid disruption to your long-term investment strategy. 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.
Depending on your liquidity needs, there are additional options that may play different roles. CDs can help businesses earn higher yields on a portion of reserves. Money market mutual funds on the other hand may offer easy access to your cash balance, making it easier to access funds or make adjustments when rates change.
Thoughtful cash management starts with understanding where your cash stands today and where it’s likely headed. Accounting for cash on hand, regularly forecasting cash flow and working with your financial advisor to balance liquidity and access to credit can help you find the right approach so your business is prepared to meet day-to-day needs, seize opportunities and navigate whatever comes next with confidence.
A line of credit backed by securities, such as a securities-based line of credit or a tailored line of credit, may not be suitable for all clients. Lines of credit are subject to a committed amount of $100,000, which serves as an ongoing minimum requirement unless otherwise approved by the lender in writing. Such requirement is outlined in detail in the legal agreement provided at application. 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 may sell the client’s securities without contacting them. A client may not be entitled to choose which securities or other assets in his or her account are liquidated or sold to meet a Collateral Call. In many cases, the firm may increase its maintenance requirements at any time and is not required to provide a client advance written notice. A client may not be entitled to an extension of time on a Collateral Call. Increased market interest rates could also affect the applicable rate index that applies to your line of credit causing the cost of the credit line to increase significantly. The interest rates charged are determined by the line of credit amount as outlined in the Loan Agreement. Lines of credit are provided by Raymond James Bank. Raymond James & Associates, Inc. and Raymond James Financial Services, Inc. are affiliated with Raymond James Bank, Member FDIC. The proceeds from a line of credit backed by securities cannot be (a) used to purchase or carry securities; (b) deposited into a Raymond James investment or trust account (with the exception of advances made into the pledged account solely for the purpose of sending out or effecting an international wire within 1 business day of receiving funds from the bank); (c) used to purchase any product issued or brokered through an affiliate of Raymond James, including insurance; or (d) otherwise used for the benefit of, or transferred to, 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 towards a line of credit.
