I think we can all agree that a company needs liquid capital. Working capital and future capital expenditures are two big items that should show up on a balance sheet.
My question is where do you keep that money?
How do you balance the liquidity need with potential for interest income?
Is the trouble of doing a dance between several different accounts (different balance of availability and rate of return) not worth the hassle?
Is the best just a few checking accounts for different needs?
What do you guys do?
Jon Blakemore
Replies
It's relatively easy to keep some dough in a brokerage house money-market checking account. You can usually set up a electronic-funds-transfer so that you can move money quickly when you drive by the dealership and see a killer truck with your name on it. Yeah, you don't make much interest in a money market, but at least you're not just letting it sit in a no-interest checking account. If you see a bunch of cash piling up in there it's easy to move it over to bonds, mutual funds, CDs, whatever. The problem with taking money in and out of investments frequently is that it creates a lot of tax hassles.
Many banks will also pay interest on checking account balances if they're above a certain level.
I knew one contractor who never kept much cash on hand. Anytime he got a bit of a surplus he paid down his mortgage. He figured that NOT paying 8% was better than anything else he could do. He had a equity line so he could borrow back if he had to.