Banking for Resilience & Cash Flow

Ohhh fffffffffffu-NNN! FUN times!¹

It’s wild how reading words on a screen- and really, that’s all that happened, I read words on a screen- has such an intense physical impact.

First, your face gets hot and light headed as the blood seemingly empties from your head. Then in rapid succession, your stomach drops. You think: I might pass out. I might vomit. Between you, dear reader, me, and the NSA (just kidding?), I’m not sure both isn’t an option.

This happened to me not long ago so I remember it pretty well. However, after a decade as a business operator, this isn’t the first time I’ve had something like this happen and I like to think I’m cool under pressure.

So. I changed my pants. I spent a few minutes on the phone sorting out what had happened. And then resumed my normal day. I even forgot to mention it to my wife² when I got home initially. That’s how unfazed I was.

That’s not a flex - it’s more embarrassing that these things have happened multiple times before I learned these lessons. Lessons that hopefully this email will provide you without the hot-faced-pit-in-stomach-faint-no-vomit-no-both feelings.

I’ve built a fairly resilient banking stack that allowed for my business to have bank accounts holding 6 figures cleared out… and continue on with little to no disruptions to payroll or operations.

As it happens, I started writing this earlier in the week. Before fires ripped through LA and resilience and preparation for disaster became first and foremost on my mind all week. Do our trucks have full tanks of gas? Do we have water on hand? First aid? Antibiotics? Candles? I probably need bigger tires and new racks on my Rover…³

These are the truly scary things, the REAL fires, far more devastating than the things we call “fires” in our business.

But when the bad stuff happens, like the really really bad stuff, I can’t overstate the value to having a business that operates like an asset that helps get you through it and not another complication to be managed.

So let’s cover one element of your business that can really make a difference whether it’s a business “fire” or a literal fire.

Your banking and cash management stack.

Here is our playbook for building a resilient AND cash flow optimizing banking set up.

1. Move funds into multiple accounts across multiple banks.

2. Maintain appropriate amounts of reserves based on your business

3. Set up protocols for saving, deploying, and distributing cash

We’ll tackle #1 today.

Move funds into multiple accounts across multiple banks

On any given day anything can happen. Tech issues might lock you out of an account, a bank can fail (SVB), a hold might be put on transferred funds indefinitely, or a random BOI audit error could clear out your accounts with no warning.

The line between minor annoyance and catastrophic can be as thin as the deadline in your payroll calendar. There are no "my dog ate my homework" exceptions in business. You either have the money or you don't.

Here's how I'd set up your accounts:

Operating checking 

This is where all your transactions run that can't be put on a charge or credit card. I'd pick something that is well established and has a good UX since you'll be in it more often than others and you need your primary horse to be reliable.

Keep somewhere around 1.5 mo cash in this account to cover regular expenses and should business slow or an unexpected big expense come up you have 30+ days of cash right there to sort things out.

I suggest using someone like JPMorgan Chase. I have not had good experience with Wells or other large banks and hopefully we all remember the Silicon Valley Bank ordeal.

Linked Primary Savings account 

Keep this simple and don’t over complicate it. Something with the same bank as your primary checking or that is as easy and FAST to make a transfer if you needed to. Dream scenario, it's also a high-yield account but if it’s not you don’t need to keep a lot here. We’ll talk amounts later.

Operating credit/charge card 

I’d run most expenses through credit and/or charge cards. First of all, get those miles and cash back. You could be paying for anything from a Udemy subscription to a full Virtual EA each month with your cash back from normal purchases.

Second, putting expenses on a card is an easy way to give yourself 30 day terms on expenses. I don’t recommend using it as true debt, which is why I like charge cards attached to AP tools, but if you time your payments in and out right you can SIGNIFICANTLY increase your average cash on hand. We’ll write more on this another time.

Third, create multiple virtual cards and assign unique card numbers to subscriptions and regular expenses where your card is on file. In the event of a breach, you can quarantine a compromised card quickly without a lot of hassle.

I also like to distribute physical and virtual chart cards to team members with preset limits ($200, $500, $1000) and a policy that if they see an opportunity to solve a problem OR go above and beyond for a client they have funds at their fingers and do not need formal permission. Empower them to make it happen.

Everyone has their preference and I don’t have strong opinions here but AmEx, Chase Ink, and Capital One Spark are the ones I’ve used or had clients use and like the most. For a charge card I like Ramp which has a great AP tool for paying bills and allocating expenses and often these programs have cash back and rewards competitive with credit cards.

Secondary checking

This might feel like overkill and depending on the features of some of your other accounts, maybe you don’t need this. BUT. I like having enough cash for 1-2 payrolls in an account that I can write checks from, run a debit card on, and is also linked to my payroll system in case something happens to my primary checking.

I’d pick something easy to use such as an online-only, tech forward company that has a great UX. Mercury, Axos, something like that.

Secondary High Yield Savings

This is where the bulk of your reserve funds live. Get something with high interest potentially at the expense of convenience and features. A lot of these offer checks, debit cards, free transfers, etc. that make it very easy to move funds in which case you could merge this with the secondary checking. The point here is that as you build up significant cash reserves for future strategic spending, tax payments, profits to be distributed, or anything else not immediately headed out the door, you have it all sitting in something that’s earning a fair amount of interest.

These are harder to find than personal HYSA’s like Wealthfront or Betterment and gone are the days of 5.5% but there still are decent options getting 3-4% like Capital One or Axos.

Additional Accounts

If you have a lot of cash on hand - hundreds of thousands or millions - you may need to open up separate accounts to stay under the FDIC insured limits. I’d spread it around a couple of banks and multiple HYSA’s or even treasury accounts to get the best interest while keeping it guaranteed.

Cash

No need to go full prepper with gold bars, crypto drives, or cash hidden in walls. Just put $500-1500 of cash somewhere safe. Sometimes very unique and fortunate (and legal!) opportunities open up when you have a roll of cash available.

To summarize…

Keep multiple accounts with multiple banks such as:

1. Primary Checking - Bank A - ~1.5 months of expenses in Primary Checking (1) + Savings (2)

2. Primary Savings - Bank A

3. Secondary Checking - Bank B - 1-2 payrolls worth in an account linked to your payroll service and ready to go

4. Secondary HY Savings - Bank C

5. Additional accounts for funds above the FDIC limits

6. $1000 cash on hand

Next, we’ll cover how to figure out how much should be in each and protocols for saving money, moving funds, using funds, and taking distributions. For now, at least you’ll have a banking stack that achieves 3 things:

1. You’re diversified from any single banking event creating too much chaos

2. You’ve extended your cash cycle by pushing most monthly payments to a lump sum at the end of the month.

3. You’re earning interest and points on money held for rainy days

I hope you never open your bank app and see funds cleared out or accounts frozen or your bank insolvent. But if you do, I hope you take a few breaths, feel annoyed for a minute, and then go about sorting it out without any disruption to the business.

If this was helpful, maybe share it with another business owner who might benefit from it. And if you’d like our help setting something like this up, we’d love to discuss working with you.

For now, stay safe, stay diversified, and keep cash flowing.

Best,

Chase “no, I’ve never barfed and passed out before” Spenst

¹ Yeah, I didn’t say “fun”

² She found the pants if you must know…

³ Never let a disaster go to waste