Best Practices in Cash Management

Welcome to the new “Q&A” series from Friends & Family Capital. Each post quickly unpacks a focused topic with actionable advice from a domain expert. The format is simple, direct question and answer.
We open the series with Friends & Family Capital’s own Colin Anderson, who previously served as the longtime CFO of Palantir Technologies.
Cash Management
Q: My business is not 100% predictable yet. How much cash should I have on hand?
A: Operate your business from a position of strength across a range of potential future states and maintain a strong cash war chest.
Have more than six months of cash liquid and available, spread across at least two banking partners. Ensure you can consistently run the basics of your business even if something unexpected happens.
In the current macro environment, fundraising is taking longer and involves a higher cost of capital than in the pandemic fundraising environment. Take capital when it is available, likely before you need it, and at a price that makes sense relative to today’s market dynamics.
Q: Interest rates are through the roof. We saw SVB collapse nearly overnight. How do you keep your war chest safe?
A: Stay safe and liquid! Don't chase yield. You will create more value by growing your business than by investing in riskier instruments or tying up funds. Growing sales by 100%+ and staying alive creates much more value than optimizing 5-10% interest rates.
Tactically, I would build a ladder of short-duration US government T-bills so that you always have a low-risk waterfall of liquidity coming your way. During times of US government volatility, consider letting your cash roll off the treasury ladder before things go sideways.
Q: Operationally, how do you think about banking partners?
A: Choose stable partners and build in redundancy as you scale. Migrate over time to banking partners that are too big to fail. Only give a bank an amount of cash that you can afford to not touch for a year (or lose entirely). If this is not feasible, set up multiple banking partners with no more than 1/3 of your cash at each.
Q: What team operations do you recommend to keep cash safe?
A: Pick one person to own the defense of your war chest. No single person should ever be the sole approver of cash transfers. Always require the approval of two people to move any money. Moving large amounts should involve three people or more, and one of them will likely be a founder in the early days.
Q: How often should cash balances be reviewed?
A: The two folks most proximate to money movement at your company (always at least a preparer and approver) are viewing your balances daily, or at least a few times a week. Early on, one of these two roles is most likely filled by a founder/CEO. As you scale, keep your founder/CEO in the loop with a weekly cash status email. This is especially important during times of volatility. Things can break quickly, keep proximity and monitor the leading indicators of your business.