- Do you know the true cost of holding excess cash in your business bank accounts?
- Would additional capital be helpful to fund your business growth while taking less risk?
- How many more team members could you hire (or not fire) if you earned more interest on your cash?
- Does your bank salesperson have any incentive to increase your interest rate unless you pester them?
Warren Buffett is one of the most astute capital allocators of all-time while being known to maintain a fortress, ultra-safe balance sheet. Consider the following excerpt from Berkshire Hathaway’s SEC Form 10-Q filing as of September 30, 2022, that shows 74% of Berkshire Hathaway’s “cash” balance being held in U.S. Treasury Bills.
Berkshire Hathaway SEC Filing Excerpt:
“At September 30, 2022, our insurance and other businesses held cash, cash equivalents and U.S. Treasury Bills of $105.2 billion, which included $77.9 billion in U.S. Treasury Bills.”
Essential Partners helps founders, CFOs and business owners earn a higher return on their cash balance. This leads to more capital to operate their business. Like Mr. Buffett, we prioritize safety and liquidity, so the cash is available when our client partners need it. Further, we customize to unique needs and our client partners work directly with our founder, not a call center, salesperson or junior client service representative.
Consider a recent example:
- Client partner receives $30MM in cash from a Venture Capital firm
- Cash burn rate of $1.5MM per month with declining burn to $750,000 per month in 6 months due to signed contracts
- Existing bank money market interest rate of 1%
Essential Partners collaborated with the key executives to design a custom portfolio of U.S. Treasury bonds to earn a weighted average interest rate of 4.6%. The higher interest earned will lead to over $750,000 in additional cash to fund business growth. Absent additional growth spending, the additional interest can extend the cash runway by over 2 months over the next 6 months. Lastly, the portfolio has no bank credit risk unlike bank money market, CDs or savings accounts that may rely on the credit worthiness of the bank.
Additional questions to consider:
- Have you assessed how your 12-24 month liquidity needs impact the interest you could earn while factoring in the shape of the interest rate yield curve?
- How are you proactively protecting your interest income from future Fed rate decreases?
- If you use a big bank/broker for cash management, do they sell you T-Bills from their own inventory or from a competitive open market?
- Does your bank salesperson cater to you or their boss, company or shareholders?