time for treasury

Enough of all that doom and gloom recessionary talk!  I know we can’t deny that we are in a recession and that everyone is showing fiscal prudence but there are a few bright lights.  A client of mine spent all of last year boosting sales while keeping costs at a minimum and managed to sock away quite a bit of cash ‘for a rainy day’.  Well, it’s pouring in Vancouver these days (and in the tech community in general) but they continue to put their best foot forward.

Last week I was talking to one of the board members and I mentioned that I thought it was time for a Treasury Policy.  Now, more than ever, companies need to manage their cash wisely and that also includes how they invest excess cash.

So, what’s in a treasury policy?

Treasury policies review how to manage your liquid assets (how, when and what to invest your excess cash and how and when to hedge a position, for example your foreign exchange) so that activities accurately reflect management guidance on allowable financial instruments and level of risk the company is willing to take.  For small companies, your board of directors will want to see and approve a treasury policy.

In the case of my client, the policy is really to articulate how much to invest and in what.  The magical words their board is looking for are:

The company will not invest, at any time, other than in Permitted Investments through its primary banking relationship.  “Permitted Investments” means short-term bonds, debentures, mortgages, notes or similar obligations/investments of [Canadian or United States] federal, [provincial or state], or municipal governments or guaranteed by the [Canadian or United States] federal government or debt obligations of corporations rated [R-1 by Dominion Bond Rating Service Limited, A-1 by C.B.R.S. Inc., A by Standard and Poor’s] or the equivalent rating by a similar rating agency.

Essentially this means they are looking for you to only invest in relatively risk free investment certificates.  Most tech companies here in Vancouver use Comerica for their cash management because: (1) they have a partnership with Royal Bank of Canada so it is easy to move money from your chequing account to your investments and (2) most of the venture capital guys in town use them for their cash management.

Why not just invest at my current bank?

Well, your local branch is probably offering less than 1% on GIC’s less than a year in term.  Odds are Comerica can do a bit better for you.

So, if you have a bit of excess cash hanging around your chequing account (e.g. more than 3 months of burn) then think about starting with the Business Ready Treasury Policy to give you guidance on process and procedure.  Your board will be impressed that you are so dialed-in to corporate governance and will be relieved that you actually think about smart ways to make your money work.