After the Silicon Valley Bank (SVB) crisis, companies all over the world have been forced to relook at their treasury and cash management policies. The episode taught us a hard lesson: cash management and diversification of banking relationships are not just good practices but survival strategies, especially for startups and growing businesses.
For Startups: Build a Foundation
1. Diversify Your Banking Partners
Open accounts in more than one bank, ideally banks with different risk profiles and benefits. So if one bank has issues, you won’t lose access to your funds.
2. Create an Emergency Cash Reserves
Keep a reserve of at least three to six months of operational expenses. This should be easily accessible and separate from your operational funds.
3. Cash Flow Forecasting
Do weekly or monthly cash flow forecasting. Knowing your cash ins and outs will help you anticipate future cash positions so you never get caught off guard.
4. Use Financial Tech
Use financial tech for better cash management. Tools and platforms that give you real time visibility to your cash position will be super helpful in making quick decisions.
For Midmarket: Scale Responsibly
1. Advanced Cash Flow Management
As you grow, your cash flow management should get more sophisticated. Implement more detailed forecasting models that accounts for different scenarios like market downturns and rapid growth.
2. Working Capital Optimization
Focus on optimizing your working capital by managing receivables, payables and inventory better. This might mean renegotiating terms with suppliers or incentivizing early payments from customers.
3. TMS
Invest in a treasury management system (TMS) to automate many of your cash management processes. A TMS will give you a holistic view of your company’s liquidity and financial positions so you can manage risks better.
4. Banking Relationships
Build relationships with multiple banks, including big institutions and regional banks. This not only gives you safety nets but also opens up opportunities for better terms and services as you grow.
For Enterprises: Refine and Innovate
1. Global Cash Management
For enterprises operating globally, managing cash across different currencies and regulations is a top priority. Implement global cash pooling to optimize liquidity management and reduce external borrowing needs.
2. Risk Management Strategies
Develop risk management strategies including hedging policies to protect against foreign exchange and interest rate fluctuations.
3. Continuously Innovate
Stay ahead of financial technology by adopting new tools and practices that can further automate your processes and give you strategic insights, like AI driven forecasting models.
4. Corporate Social Responsibility (CSR) and ESG
Include CSR and ESG (Environmental, Social, and Governance) in your treasury policies. Sustainable finance is not just about risk management but also about opportunities that align with your company’s values.
Conclusion
Going from startup to enterprise requires a Treasury and cash management that evolves in complexity as you grow. The post SVB world has taught us to be vigilant, diversified and innovative in our financial management. By implementing these practices at each stage of growth, companies will not only protect themselves from financial risks but also position themselves for growth and success.
FAQs
1. What did Silicon Valley Bank (SVB) teach businesses about cash management?
The SVB crisis showed us that cash management and diversification of banking relationships are not just good practices but essential strategies for survival - especially for startups and growing businesses.
2. How do startups diversify their banks?
Startups should open accounts with more than one bank, ideally with banks that have different risk profiles and benefits. If one bank has issues you don’t lose access to all your funds - diversification is key!
3. How big should the emergency cash reserve be?
Companies should have at least 3-6 months of operational expenses in reserve. This should be easily accessible and separate from operational funds.