At its heart, cash flow is money in and money out. And good cash flow management means you’ve got more cash entering your accounts than exiting them.
But when you have surplus cash, what do you do with it? One option Commercial Relationship Manager, Gift Henry-Machame regularly discusses with her clients is investing excess funds to further strengthen their cash flow.
She says the role of investments in cash flow is part of the conversation when she sits down with business owners to build successful cash management strategies at CWB’s Regina Banking Centre.
First up, she’ll introduce a few table stakes considerations:
- What's the client's investment knowledge
- What’s the client’s risk appetite?
- What are the client’s cash flow needs
- How easily do investments need to be liquidated?
After they come to a mutual understanding of objectives and needs, she’ll then develop an Investment Policy Statement (IPS). “This is a document between a banker and client that outlines general investing rules for the banker to follow,” says Henry-Machame. “This policy is a living document that’s updated as soon as any circumstances change.”
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With an IPS in place, the focus turns to action. Below, Henry-Machame deposits five insights she brings forward to clients when it comes to investing in their cash flow.
- Augment your excess cash by investing in money market instruments. Money market instruments, like money market mutual funds, treasury bills, and money market savings accounts are short-term, low risk, and can generate additional cash flow for your business.
- Use the interest from investments to decrease your existing liabilities. Without touching your principal, the interest you gain on your investments can be applied to your accounts payable.
- Help stabilize your cash flow with regular, passive income. Regardless of the frequency, if an investment – such as a fixed-coupon bond – is giving you compound payments, that’s steady cash you can count on.
- Use flexible products to grow your funds and be positioned to seize opportunities. If you have a substantial amount of surplus cash, products that have high liquidity like a short-term GIC or a Flex Notice Account give you a place to put your money until you need to use some (or all) of it – all while earning interest that can go towards your cash flow.
- Advance your succession and legacy goals. While you’re busy making money and running your business, long-term investments offer the comfort of financial security for the future without having to touch your principal or dip into your cash flow. Instead, you get peace of mind that you’ll be able to retire, travel and have something to pass on to your loved ones when you’re ready to sail off into the sunset.
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