While bank failures are rare in the grand scheme of things, they can and do happen - as recent events like the closure of Silicon Valley Bank go a long way towards proving. When these types of bank failures do occur, they can be catastrophic. They happen quickly and often without warning, leaving business owners in particular in one of the most distressing situations imaginable.
Thankfully, all hope is not lost. If you do want to be proactive and take steps to protect your business cash during a period of banking uncertainty, there are a few key things you'll want to keep in mind.
What is Treasury Management?
"Treasury management" is a term used to describe how you manage not only your business' daily cash flow but also other large-scale financial decisions that are taking place.
In essence, it's a way to maintain oversight and visibility into your organization's liquidity. It also brings with it the added benefit of helping you establish and maintain credit lines, it gives you the insight you need to optimize the returns that your various investments are yielding, and more. Many also use it to help put together long-term strategies pertaining to the best ways to use (and grow) the amount of cash they have on hand.
Is Treasury Management the Same as Cash Management?
Treasury management and cash management are not the same things, but they are certainly related concepts. Cash management, as the name suggests, is the process you use to oversee your daily cash flow to ensure you always have access to the money you need when you need it. Think of it as a subset of the larger idea of treasury management.
If you're operating in an industry that puts you at particular risk of cash depletion, a forward-thinking approach to cash management can help you more effectively balance cash flow. It can then make it easier to replenish those funds so that even in times of uncertainty, you can still capitalize on opportunities instead of being forced to watch them pass you by.
Evaluate Your Current Exposure
More than anything, it's important to understand exactly how exposed you might be should any one particular bank fail. Obviously, if all of your business cash is housed exclusively in one bank right now, the chances of you getting cut off from it should the bank fail are essentially 100%.
Make a list of all your accounts including where they are located, what types of accounts they are, how much money is in them, and more. Know what your risk surface profile is so that you can make the most actionable decisions possible moving forward.
How to Protect Your Business Against a Bank Failure
To protect your business against a total bank failure, the first thing you should do is be mindful of the $250,000 cap. Remember that the FDIC insures up to $250,000 per depositor, per financial institution, per ownership category. If the total amount of money you're worried about potentially losing is more than $250,000, you might want to consider an alternative like a bank that is part of the IntraFi network.
These banks offer what is known as an Insured Cash sweep and a Certificate of Deposit Account Registry service. Essentially, your money is spread across multiple banks in the IntraFi network so that no more than $250,000 is in any one place at one time. That way, even if a bank does fail, you're not cut off from all of your financial assets. The chances that multiple banks would unexpectedly fail at the same time are far lower than even that of a single failure.
Along the same lines, you should use multiple business bank accounts whenever possible. As a rule of thumb, always keep your emergency fund in a separate account at a separate bank from the account you use for daily operations. Again, this will protect you against any single point of failure.
Your Bank Failed. Now What?
If your bank should fail, the first thing you need to do is gather the facts. Find out what happened, why it happened, and when you will have access to those funds per the FDIC. Communicate this information to all key stakeholders and immediately set up a new business bank account with a different financial institution. At that point, you can also embrace some of the best practices outlined above to mitigate risk from this type of thing happening to you in the future.
In the event that you find that your bank has suddenly closed, don't worry - there are still steps you can take. One of those involves contacting one of our passionate and professional team members who can help you mitigate the risks associated with these uncertain times. To find out more, or to get answers to any other specific questions about protecting your business cash that you may have, please don't delay - contact us today.
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