Setting Up Your Corporate Banking & Treasury Strategy

A question we often hear is “Is my corporate banking & treasury strategy set up correctly, and if not, what do you suggest we change?”  In this post, we’ll show you how to answer that question for yourself and go over a few recommended banking and treasury management setups for different types of businesses that you can use as a starting point.

Most folks are familiar with banks and the services they offer, but are less familiar with Treasury Management. A treasury team’s responsibility is to manage the company’s corporate cash, its liquidity needs and foreign exchange exposure. Fortune 500 companies have in-house treasury experts that help them optimize their financial resources. Our goal at InterPrime is to empower small and medium sized organizations to do the same.  

What type of company are you?

In order to determine your general banking needs it is important to classify your business into one of these categories:

  • SMB –  restaurants, coffee shops, gyms, boutiques etc.
  • Traditional – you built your company the old fashioned way without venture capital, and are consistently profitable
  • Early Stage Venture Backed – pre-seed, seed, and up to A round
  • Post Product market fit Venture Backed – B round and later
  • Investment Company – a company formed primarily for the purpose of investing pooled financial resources. This could be in stocks, bonds, real estate, venture capital etc.

Classifying your business correctly is important so that you can focus on not only your current situation but also anticipate future needs.

Assess your needs

When you get down to it, banks can help you do 3 main things.

  1. Store Your Money – Checking & Savings Accounts
  2. Move Your Money – ACH, Wire
  3. Lend You Money – Credit Cards, Loans

Your business may make heavy use of certain services but not others, so keep that in mind when choosing a bank, as their services can differ greatly. This will help you figure out which of these services to prioritize as different banks and their corresponding accounts are optimized differently.

Initially, your business may not need the lending capabilities of a bank, however it’s good to plan for the ability to draw on a credit line in the future. Recently, many businesses found themselves applying for PPP loans due to the economic impacts of the coronavirus. However, only banks with lending capabilities were able to distribute these loans. If you were already banking with one of these banks, it was much easier for you to get your loan quickly.

It’s also a good idea to have access to a corporate credit card. Even if you don’t need it now, having access to credit can be an invaluable lifeline in an emergency where you need access to cash fast. Most banks will have a credit card on offer, but you can also get a card from independent credit card providers like American Express.

Big banks (JP Morgan, Wells Fargo, Bank of America etc…) offer more complex lending products like Term Loans, Working Capital Loans, Asset Backed Loans and Venture Debt, so if you bank with them you will have access to those products if you ever need them. However, even if you don’t bank with them now, you can still apply to get a loan from them.

The takeaway here is that it’s wise to bank with an organization that has at least some form of lending capabilities. It’s always easier to get a loan from a bank when you have a pre-existing relationship.

Companies are now increasingly global, so if you do a significant portion of your business overseas (>10%) you should definitely look for a bank that offers low transaction fees and favorable rates on the foreign currency that you transact in most often. You should also shop around for an independent foreign exchange provider as they may be able to get you more favorable rates, especially if you work with less common currencies (i.e Indian Rupees, Nigerian Nairas etc.)

To sum up, every bank offers the ability to store money, make payments, and have a business credit card. However, different banks are better suited for one over the other, so you should pick the bank which gives you the best deal & most flexibility for your specific needs.  

In a future post, we’ll cover some of the secondary considerations when choosing a bank, such as reporting capabilities.

Developing a corporate cash and treasury management strategy

As mentioned earlier, the primary responsibility of a treasury team is to manage the company’s liquidity and corporate cash. Because needs vary across different types and sizes of companies, any company with more than $250k in assets should formalize their goals and strategic objectives in an official corporate cash management & investment policy. This will allow them to plan strategically and make the most of their resources.

Based on the level of cash reserves your organization has, here are some suggestions to begin developing a treasury management strategy.

Less than $250k

If you’re a small business or just getting started, and run a lean operation, then the simplest option is likely the best. A checking account with a linked savings account at your favorite neighborhood bank is a solid bet. You can get a credit card from the bank itself or from an independent provider like American Express. Spend some time shopping around for the best deal for your specific needs.

Over $250k

If your business has healthy cash reserves and you are able to stash some away for a rainy day, it makes sense to leverage the services of a strategic treasury management provider (like InterPrime!) in addition to a traditional bank. The bank can help with your day to day operations like paying bills and collecting revenue, while the treasury provider works to make the most of your longer term strategic cash. Additionally, since FDIC insurance is capped at $250k per bank per account, an independent provider can help you assess risk and plan more effectively for the future.

Another benefit of working with an independent provider is that they are not beholden to any bank and generally have a fiduciary responsibility to you. This means they are legally obligated to put your interests above all else, effectively operating as part of your team. They will help you devise a corporate cash management policy for your business that defines where assets will be custodied, the types of securities that your cash will be held in, and define specific liquidity and risk parameters (more on this in an upcoming post!)

They will also be able to give you a holistic view of your business finances and how you can effectively leverage the various financial tools that are available to further your business.

Wrapping up

Developing your company’s banking and cash management strategy can be daunting. There are a lot of options out there and it’s easy to feel overwhelmed. However, with a little bit of research and careful consideration of your long term needs, you can find the right providers for you and develop a strategy to set your business up for success.

At InterPrime we work closely with many types of companies & a wide spectrum of banking providers. Please get in touch with us for an unbiased conversation and review of your current set up.