- Liquidity and safety come before yield in every sensible treasury policy.
- Splitting cash into operating, near-term and strategic tiers makes decisions obvious.
- Runway is a function of committed spend, not just historical burn.
- Concentration risk is a real consideration for companies holding meaningful balances.
- Treasury decisions should be written down and approved, not improvised.
What cash management is for
For an operating company, cash management has one job: make sure money is available when it is needed, without taking risks that are not being consciously priced. Everything else — yield, sweep arrangements, laddering — is optimisation on top of that.
Companies get into trouble when the sequence inverts and yield drives the structure. The failure mode is not usually loss of principal; it is having cash in a place that cannot be reached on the day payroll runs.
Three liquidity tiers
Tiering removes most of the debate from treasury decisions. Once each tier has a purpose and a target size, the question of where a new inflow should sit answers itself.
- Operating — one to three months of outflows, immediately accessible, no yield expectation.
- Near-term — three to twelve months of planned spend, accessible within days.
- Strategic — cash with no planned use inside a year, where duration can be considered.
Runway, properly calculated
Runway is usually quoted as cash divided by last month's burn. That is a serviceable estimate and a poor planning tool, because it ignores commitments already made and hiring already agreed.
A defensible calculation starts from committed outflows: signed contracts, agreed headcount, scheduled payables and known seasonal costs. It is normally a shorter and much more useful number.
- Start with contracted commitments rather than historic averages.
- Include hiring that has been agreed but not yet started.
- Include annual costs that fall in a single month, such as insurance renewals.
- Model at least one scenario where revenue underperforms plan.
What a short treasury policy should state
One page is usually enough for companies below a few hundred employees.
| Element | What it should say |
|---|---|
| Objective | Priority order: liquidity, safety of principal, then yield |
| Tier targets | Target balance for each liquidity tier and the trigger to rebalance |
| Permitted instruments | What cash may be held in, and explicitly what it may not |
| Counterparty limits | Maximum exposure to any single institution |
| Authority | Who may move money, above what amount, with whose approval |
| Review | How often the policy is reviewed and by whom |
Concentration and counterparty risk
Holding an entire operating balance at a single institution is a decision, whether or not it was made deliberately. Events in recent years have made boards considerably more interested in the answer.
Mitigations are straightforward: a second banking relationship established before it is needed, deposit programmes that spread balances across institutions, and a written counterparty limit that triggers action automatically.
See FDIC deposit insurance resources for how coverage limits apply in the United States.
Frequently asked questions
Enough to cover near-term outflows comfortably, commonly one to three months, with the balance held in tiers that are still accessible quickly. The right figure depends on the volatility of your inflows.
Only after liquidity and safety are settled, and only with cash that has no planned use. For most early-stage companies the amounts involved are small relative to the operational risk of getting it wrong.
It changes timing. Card balances settle on a fixed cycle, so that outflow is predictable and should be modelled explicitly rather than treated as general operating spend.
Whoever your policy names — commonly the CFO or finance lead within limits, with board approval above a threshold. The point is that the authority is written down before it is needed.
Keep reading
Sources and further reading
Every factual statement on this page is checked against primary documentation. Terms change frequently, so confirm details with the provider before acting on them.
- Brex — official website Primary source for current product names, availability and terms.
- FDIC — deposit insurance and pass-through coverage Reference for how deposit insurance applies, including through third-party arrangements.
- Nacha — ACH Network rules and resources Used for statements about ACH timing and payment rails.
- FASB Accounting Standards Codification Reference point for accrual, expense recognition and close-process statements.