Do I just deposit in a bank account? How does FDIC cover this for the banks? What other considerations are needed. Obviously informing the bank will be necessary. What other questions should I be asking?
$100M investment coming in for a new business. Where to put it.
Answers
There are several significant and relevant questions. Do you or your company have an established banking relationship? If not, I'd highly recommend doing so immediately. You should contact your local Chamber of Commerce or visit some local businesses to see who they're banking with. And yes, the FDIC insures up to $250K in deposits...even for corporate accounts. That's nowhere near $100M.
Many banks will fall over themselves trying to get that business. I wouldn't put all of my eggs (i.e. the whole $100M) into one financial institution. Use that as an opportinity to create multiple relationships, as each will likely prove to be valuable allies at different times (e.g. when the economy slows). That process alone will teach you a lot.
You may also want to contact the Small Business Admin (800-827-5722) or visit their website at www.sba.gov. They have several resources related to managing cash flow that should prove helpful.
Another question is what will be the burn rate.
If you will have the all or part of the cash for 3 months or to a year, you can invest it in a number of extremely safe venues (T-Bills/Notes, Certificates of Deposit spread among multiple institutions), etc.
Having it sit in a checking or a regular savings account would be criminal.
I would establish relationships with 2 or 3 bigger banks (regional or national) that can offer you more options on the "use" of your excess cash (based on cash flow, capital expenditures, etc). I say 2 or 3 because I also want them to know that they need to compete (in terms of returns) for the funds and as well as spreading your risks. I would also ask your Board to approve an Investment/
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Emerson - have to ask....
so how much?
LOL
I strongly endorse Emerson's comment about an investment policy. In fact, there is one for free in the Resources area of Proformative: https://www.proformative.com/resources/short-term-investment-policy?pc-resources=1523661. It's quite good.
One of the things we council our client on that obtain significant funding is to work with the board to setup an investment policy that the board agrees to for the
Thanks for all the advice so far. What about CDARS (Certificate of Deposit Account Registry Service) or ICS (Insured Cash Sweep) services. Anyone have experience with those bank offerings?
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I would consider both. I would keep your operating funds (say...2 or 3 months) on the Sweep accounts and some on the CDARS (with staggered maturity dates). Amounts depend on your cash flow projections. As I said, depending on your
I've done both.
If you don't need the funds on a daily basis, then look more toward CDARS given todays interest rates and charges on sweep accounts.
And since each deposit doesn't exceed $250K your fully insured. Also the ability to withdraw cash is available.
Congrats!!!!
Soooo I managed large cash investments for a client and most large banks have a department that will manage this for you. They move the money out to different banks based on FDIC insurance. And yes, CDARS is involved, but you still have to watch the amount at any one bank. I think the
Also, at the time I was
The bottom line is with that much $$$ to watch, hire someone to do it for you, but make sure they guarantee that they will eat any losses from their errors. And if losses happen you are not resposibile and your auditors will be happier . . .
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Cash Management