finance, profit-sharingI am doing an income breakdown analysis on one of the areas of the business and when trying to come up with what we should do with the profits I started to wonder if we as a company should save money.
When trying to search for this I seem to only find articles about personal finance.
Definitely keep some kind of float. Particularly if you have suppliers and employees. To be super safe, you want enough money in the bank to operate for three months or more. Not all companies do that, of course. But they should.
When you grow bigger, you’ll want even more cash that you can readily access. Because you can never know when an investment opportunity will arise or when a client or a supplier might insist on a large investment or escrow upfront.
As to where to keep the money, keep it safe and liquid.
In the U.S., this answer will depend on the company’s corporate structure. A C-corp vs an S-corp/LLC will treat profits differently, there are considerations for the number of shareholders in the company, classes of stock, etc. That said, between the different corporate structures you will see companies attempt to manage profitability (through distributions, dividends, capex, investment, profit sharing, etc.) - as profit is often highly taxed.
On a day to day basis, there are a number of cash management options at the disposal of the business. There general idea is that idle cash should be kept in an account with the proper mix of liquidity and interest. You’ll commonly see things like money market, sweep account, short term t-bills, etc. A larger company like Apple or Microsoft? I’d be very interested to know more about how they manage their cash.
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