Where do most startups put their cash for operations while it is being unused?
High-interest savings accounts? "Safe" index funds?
We always recommend a conservative approach to cash management and the key is to always have at least six months or more of operating cash on hand, fully liquid and accessible.
Typically something as basic as a money market account at a large institutional bank (removing the risk of bank failure) is recommended for any remaining cash, though yields these days are extremely low.
Beyond a money market, some yield can be obtained through CDs, Treasury Bills, and Corporate Bonds (only the top rated A1 or better), none of which should have a maturity of over 12 months so as to avoid tying up too much cash. Anything riskier than this is not worth the additional yield.
Overall, the most important aspects of a good investment policy for a startup are preservation of principal and little time commitment from management. You will get much greater value from focusing time on building the business as opposed to trying to squeeze an extra 10 or more basis points out of your idle cash.
Typically something as basic as a money market account at a large institutional bank (removing the risk of bank failure) is recommended for any remaining cash, though yields these days are extremely low.
Beyond a money market, some yield can be obtained through CDs, Treasury Bills, and Corporate Bonds (only the top rated A1 or better), none of which should have a maturity of over 12 months so as to avoid tying up too much cash. Anything riskier than this is not worth the additional yield.
Overall, the most important aspects of a good investment policy for a startup are preservation of principal and little time commitment from management. You will get much greater value from focusing time on building the business as opposed to trying to squeeze an extra 10 or more basis points out of your idle cash.
