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$100M investment coming in for a new business. Where to put it.

Do I just deposit in a bank account? How does FDIC cover this for the banks? What other considerations are needed. Obviously informing the bank will be necessary. What other questions should I be asking?

Answers

Topic Expert
Mike Caruana
Title: Director of Financial Services
Company: Diamond Resorts International
(Director of Financial Services, Diamond Resorts International) |

There are several significant and relevant questions. Do you or your company have an established banking relationship? If not, I'd highly recommend doing so immediately. You should contact your local Chamber of Commerce or visit some local businesses to see who they're banking with. And yes, the FDIC insures up to $250K in deposits...even for corporate accounts. That's nowhere near $100M.

Many banks will fall over themselves trying to get that business. I wouldn't put all of my eggs (i.e. the whole $100M) into one financial institution. Use that as an opportinity to create multiple relationships, as each will likely prove to be valuable allies at different times (e.g. when the economy slows). That process alone will teach you a lot.

You may also want to contact the Small Business Admin (800-827-5722) or visit their website at www.sba.gov. They have several resources related to managing cash flow that should prove helpful.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Another question is what will be the burn rate.

If you will have the all or part of the cash for 3 months or to a year, you can invest it in a number of extremely safe venues (T-Bills/Notes, Certificates of Deposit spread among multiple institutions), etc.

Having it sit in a checking or a regular savings account would be criminal.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

I would establish relationships with 2 or 3 bigger banks (regional or national) that can offer you more options on the "use" of your excess cash (based on cash flow, capital expenditures, etc). I say 2 or 3 because I also want them to know that they need to compete (in terms of returns) for the funds and as well as spreading your risks. I would also ask your Board to approve an Investment/Treasury Policy (if you do not have it yet) where you can allocate "investment" of excess cash/funds based on investment risks/returns. By the way, for some companies, even the establishment of banking relationships still need to be Board Approved (separate from the Board Resolution authorizing the opening of the account/s). If you can do this before the funds arrive, the better for you. I don't think I need to emphasize how much "interest" can be lost even for one day @ $100m.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Emerson - have to ask....

so how much?

LOL

Mark Stokes
Title: CFO
Company: Private
(CFO, Private) |

I strongly endorse Emerson's comment about an investment policy. In fact, there is one for free in the Resources area of Proformative: https://www.proformative.com/resources/short-term-investment-policy?pc-resources=1523661. It's quite good.

Jeff Stark
Title: Partner
Company: Sensiba San Filippo LLP
(Partner, Sensiba San Filippo LLP) |

One of the things we council our client on that obtain significant funding is to work with the board to setup an investment policy that the board agrees to for the management of cash. With that much cash it is good to make sure everyone is on the same page about the type of investment or what type of financial institution is acceptable for the placement of idle cash.

Marty Koenig
Title: CEO and CFO
Company: cxotogo
LinkedIn Profile
(CEO and CFO, cxotogo) |

Thanks for all the advice so far. What about CDARS (Certificate of Deposit Account Registry Service) or ICS (Insured Cash Sweep) services. Anyone have experience with those bank offerings?

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

I would consider both. I would keep your operating funds (say...2 or 3 months) on the Sweep accounts and some on the CDARS (with staggered maturity dates). Amounts depend on your cash flow projections. As I said, depending on your risk appetite, you can also explore other short term alternatives offered by your bank that may offer higher interest rates for the risk. I would design an investment matrix where the available instruments are listed according to risks/returns/cost and allocate your funds from there (...and as approved by your Board). I usually recommend (and for the sake of easier management) a 60/30/10 distribution where 10% is the highest risk instrument you are comfortable holding.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I've done both.

If you don't need the funds on a daily basis, then look more toward CDARS given todays interest rates and charges on sweep accounts.

And since each deposit doesn't exceed $250K your fully insured. Also the ability to withdraw cash is available.

Kim Hall
Title: Consultant
Company: HWG, Inc.
(Consultant, HWG, Inc.) |

Congrats!!!!

Soooo I managed large cash investments for a client and most large banks have a department that will manage this for you. They move the money out to different banks based on FDIC insurance. And yes, CDARS is involved, but you still have to watch the amount at any one bank. I think the technology has advanced quite a bit since I did this so maybe this is easier now.

Also, at the time I was CFO for this client, banks were failing left and right. The bank managing the cash lost track of a name change and lost $100K. When I realized what had happened I went after the bank managing the money and was able to get it back.

The bottom line is with that much $$$ to watch, hire someone to do it for you, but make sure they guarantee that they will eat any losses from their errors. And if losses happen you are not resposibile and your auditors will be happier . . .

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