Cash is king, and this mantra is especially true in a tough economic climate. A
strong cash flow helps businesses procure materials, pay vendors on time and
maintain a quality work force. Operational
success ultimately comes down to the availability of cash. Companies that have it are
healthy even in bad times.
A private banker who understands your
financial profile — business accounts, personal loans, retirement plans, investments —
can recommend and offer tools to help you
generate cash flow.
“In this time, a banker that acts as your true
business partner should always be looking
for additional ways to help your company
‘find’ money,” says Joe Verduci, assistant vice
president and retail banking manager at
Brentwood Bank. “It’s important to establish
a relationship with a private banker that can
work as a quarterback and handle all of your
banking needs. That way, you can work
together toward meeting all of your financial
goals, and the banker can identify products
to help you achieve your objectives.”
Smart Business spoke with Verduci about
cash-generating banking tools and strategies
to maintain a healthy bank account in recessionary times.
How do you address business owners’ concerns about FDIC insurance?
The simplest way to insure your full deposit
is to work with a bank that participates in the
Certificate of Deposit Account Registry
Service (CDARS). This program includes
more than 2,500 U.S. financial institutions
that essentially coordinate their FDIC insurance coverage and act like a co-op.
For instance, if you need an additional
$100,000 worth of coverage, the CDARS program at the bank will obtain a certificate of
deposit (CD) from another participating
financial institution. The money remains at
your bank, but the bank essentially ‘borrows’
insurance from another CDARS institution to
protect your funds. Through this program,
companies (and individuals) can insure up to
$50 million.
There are a limited number of Pittsburgh
banks that participate in CDARS, so it’s wise
to ask your banker about the program to be
sure that all of your deposits are protected.
Make sure your bank can obtain the insurance necessary for your total deposit.
Are there other CDARS products that can protect a business’s cash?
One of business owners’ main concerns
about opening a CD with operating funds is
availability of cash. A 90-day CD can be a
long-term commitment for a business that
must meet payroll and maintain quick access
to its funds. Fortunately, there are attractive
alternatives available. For instance, a four-week CDARS CD allows businesses to earn
interest on money until they need the funds.
The short-term CD provides the flexibility
business owners need and offers a return on
their investments.
How do sweep programs work, and how can
businesses bolster their cash flow this way?
Sweep programs are flexible money market accounts that earn interest and are linked
to a zero-interest operating account.
Businesses that currently keep their operating dollars in a zero-interest account where it
sits waiting for payables to be distributed or
large bills to be paid do not earn money on those deposits. By tying that account to a
money market that earns interest with a
sweep function, deposits literally ‘sweep’
back and forth between accounts with no
penalty. The business earns interest on its
deposits until it uses the funds. The money
automatically transfers to the checking
account when the business needs to make a
payment. For instance, I know a business
client that ‘found’ $1,000 a month in interest
that he wasn’t previously earning from his
zero-interest checking account. The money
market sweep program allows him to earn
money on funds and still access cash when
he needs it.
How can a business line of credit help earn
businesses money if used conservatively?
There are often opportunities to earn discounts with vendors that offer flexible payment terms. For instance, when a vendor
offers a 10 percent discount if payment is
received within 10 days, a business can take
advantage of that discount and use its line of
credit to save money. If it does not run a balance on the line of credit, a business can save
money by paying vendors with favorable
terms and sidestep fees that build up when a
credit line is extended for a long period of
time. Before using this ‘savings’ method, discuss the strategy with your banker.
Speaking of cash flow, are banks still lending
to businesses?
Absolutely. Banks that maintained a conservative lending philosophy and did not get
involved in risky subprime lending are, for
the most part, still lending to businesses. In
fact, extending loans to sound business customers is critical to banks’ financial health.
It’s a two-way street. This is where building a
relationship with a private banker who
understands your business and personal
financial needs will go a long way toward
securing your future. Discuss your financial
‘big picture’ with a banker who has your best
interests in mind, and he or she will guide you
toward cash-earning programs and solutions
to improve your business’s viability.
JOE VERDUCI is assistant vice president and retail banking manager of Brentwood Bank. Reach him at [email protected]
or (412) 409-9100 x307.
