Idle Cash Management for Savvy Business Owners

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Treasury
Treasure
|
April 27, 2022

You may not have considered what to do with excess cash, but idle funds can hinder business development. Not all business owners know how to manage idle funds properly. But it’s crucial — a solid idle cash management plan can hedge against inflation and increase the value of a business. 

What is idle cash?

Idle cash refers to funds that aren’t being used. “Cash” can encompass physical, legal tender and cash equivalents, including:

  • Physical bills or coins stored in a safe or at a business
  • Cash deposited into a checking or savings account
  • Short-term investments, certificates of deposit (CDs) and other money market instruments

When left dormant, cash doesn’t earn interest or generate a profit. It can even decrease in value due to the effects of inflation.

Idle cash has value

Idle cash can deliver value to companies, no matter the size or phase of your business. Consider this example: Suppose you have $500 in a safe. It doesn’t appreciate or gain value when left unused. If your bank pays 2% interest, your $500 could earn interest and generate a profit of $10 in a year. Here, your $500 cash has lost $10 from an opportunity cost perspective.

This is just one example. If you have the proper cash management plan, your unused cash can increase purchasing power and add value to your business.

Strengthen your business with idle cash 

Idle cash management isn’t a financial trend — idle funds can strengthen your business or reward your shareholders if you:

  • Buy assets: Instead of letting your money sit around, put it to use by buying property, equipment and other assets that can help you turn a profit.
  • Cut costs: Pay down debt to cut interest expenses or lower the cost of personnel turnover by investing in bonuses, stock options or other programs to improve employee retention.
  • Pay dividends: Excess retained earnings can be a red flag for the Internal Revenue Service (IRS). Consider paying out dividends to distribute some of your company’s wealth.
  • Buyback stock: You could buy up the shares and potentially increase stock prices if you prefer stock buybacks to dividends.
  • Invest: Your idle cash can be invested in liquid, short term income funds to generate dividends and yield that is potentially much higher than what the bank is paying.

As you can see, many options are available for small business owners to put their idle funds into motion.

Maximize the impact of idle cash

 

If you have no obvious uses for your cash hoard, you still have plenty of options to put it to work.

Checking

Depositing your idle cash into a checking account is the most liquid option. You can withdraw your money at a moment’s notice. However, banks often pay the lowest interest rates on cash that sits in a checking account, and many pay zero interest.

Savings

The next best option for your idle funds is a savings account. You typically earn a rate slightly higher than a checking account. Still, it isn’t much — the national average savings deposit rate as of March 2022 is 0.06%, according to the Federal Deposit Insurance Corporation.

CDs

CDs, short for certificates of deposit, tie up your cash for a specified period. It can pay more interest than a standard savings or checking account, but it isn’t much. You might see a 0.09% to 0.13% higher return if you commit to a 12- or 24-month CD according to the Federal Deposit Insurance Corporation.

Treasury Account

A treasury account is likely the best idle cash management option for business owners. Large companies have utilized the benefits for decades, but SMBs can tap into the gains thanks to Treasury as a Service (TaaS) technology.

TaaS is available for businesses in various stages, from seed companies to established organizations. At Treasure, you can maximize your idle cash to earn 15x more than you can at your bank and access your funds on your terms — with daily and T+2 liquidity.*

Manage your idle cash today

If your business has excess funds, it's time to look closely at your idle cash management plan. But it shouldn’t be a one-time thing. Idle funds are best managed with an ongoing strategy. That’s where Treasure can help.

Treasure can be an integral part of your company’s financial goals. The TaaS platform from Treasure is the ultimate cash management plan for your business and offers 15x more than the typical business bank account, daily liquidity and up to $3.5M in FDIC insurance.* Open a Treasure account today to realize the value of your idle cash.

*As an incentive Treasure will apply a monthly payment to your Treasure Cash account of 0.45% annualized based on the balance of your account. The payment is not bank interest and is not an annual percentage yield.

*Based on average bank account rates as of 3/31/2022. Source: Bankrate.

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