When working with business owners, we sometimes see a significant amount of cash held in the business checking account or some type of interest-bearing account. This may be for many reasons, but often it’s because they like having an abundance of liquidity in the business or that they simply are not sure what else to do with it.
Holding a significant amount of cash isn’t a great idea. First, holding excess cash in accounts under your business’ corporate name leaves it exposed to potential liabilities like lawsuits filed against the business. In addition, the balance of these accounts often exceeds the FDIC limit of $250,000 by a significant margin. What’s possibly the biggest drawback, however, is that excessive funds aren’t doing much to advance your own goals such as retirement, leaving a legacy or simply building personal wealth outside the value of your business.
A Better Way to Manage Cash for the Future
When your accountant collaborates with an experienced financial advisor a whole new world of possibilities opens. For example, your accountant evaluates your short- and long-term cash flow to identify how much cash your business needs and when it will be needed. Cash needed in the short term should stay in the corporate checking account so that it can be quickly deployed to pay upcoming expenses. A financial advisor can then manage the business’ cash using investment strategies that align with the timing of those cash needs, then explore using excess cash to build personal wealth for you as part of a broad financial plan.
Some of the areas addressed by a broad financial plan include retirement, ensuring that your estate plan is up to date, philanthropic activity, review of insurance coverage, etc. In simple terms, the plan facilitates the building of wealth strategically and efficiently to help you realize your future aspirations and enhance overall financial security.
If you find yourself in this situation and would like to discuss a customized investment strategy, talk with your Mize CPAs accountant or contact our business partners at Prism Financial Group, L.L.C. (www.prismfg.com or 913-345-1444).