Effective treasury management, also known as cash management, is often the differentiator between tech startups that take off and succeed and those that stagnate or fail. Managing cash flow — specifically, the "burn rate" of spending money before achieving profitability — is critical to success. Companies require the right mix of liquidity options to help manage their burn rate, as well as an array of treasury management products and services to operate safely and efficiently in every stage of growth.
How Treasury Solutions Improve Startup Cash Management
- An effective treasury management strategy is vital for any company, especially startups.
- The cash management needs of tech companies can change quickly as they grow and move between the early, growth and established business stages.
- Implementing treasury solutions early creates a strong foundation for effective cash management that can allow your company to grow in a safe and efficient manner.
Treasury management solutions
For many investor-backed technology companies, cash management plays a critical role. Each business stage requires different solutions for managing both cash and transaction processing. A successful treasury management strategy requires a combination of liquidity products, information reporting products, transaction capabilities and fraud prevention tools. Here is a summary of some of the more typical products and services used during each stage; First Republic offers all of the treasury capabilities mentioned below.
In this early stage, a company’s day-to-day banking requirements focus less on transactions and more on liquidity management. Venture-backed startups, for example, typically maintain three different “baskets” of cash: core day-to-day operating cash, reserve funds for unforeseen expenses and short-term burn, and a third category of funds that the company can invest for a longer term.
Longer term investments can help the company maximize the use of cash, and companies typically select their liquidity options based on their investment policy. Some of the common treasury management solutions used during early-stage growth include:
- Liquidity Solutions that include a mix of checking and money market checking accounts, money market mutual funds and managed fixed-income portfolios.
- Online Banking Systems for online access to account information and transaction initiation. Companies can view and download account information on easy-to-use browser-based systems. In general, online banking allows companies to originate payments with Bill Pay, Wire Transfers and electronic payment via the Automated Clearing House (ACH).
- Check Positive Pay to help prevent fraudulently issued checks from posting to the startup's account.
- ACH Positive Pay to prevent unauthorized electronic debits from posting to the company account while only processing authorized payments.
As companies expand to meet their development needs, prepare for future revenue generation, and start to accept funds, First Republic offers additional treasury management products and services to help. Companies frequently seek these solutions to ease the burden of day-to-day banking, help protect the company’s cash from fraud, and support rapid growth. Some often-used solutions at this stage include:
- ACH & Fed Drawdown Services are utilized to support the funding of payroll via various service providers.
- Mobile Check Deposit to scan occasional checks received on-site for deposit for same-day credit.
- Zero Balance Accounts are often utilized to minimize the need for making internal transfers.
- Cybersecurity Reviews to help reduce the risk of cybercrimes and to protect company, employee, and customer data.
Established Enterprise Stage
Companies that reach profitability are typically dealing with a higher volume of transactions and are looking for increased efficiency in their day-to-day treasury operations. At this stage, companies should, and often seek to, connect directly to their bank and add other banking products as required for their own specific needs: This type of connectivity and reporting includes:
- System Integration to streamline the update of receivables and information to various accounting, treasury workstation and receivables systems. Most banks, including First Republic, offer multiple file formats via their online systems, direct transmission and other means; banks typically help clients connect to a number of popular accounting programs and treasury workstations.
- FedEDI Reporting to view all receivable detail that is sent along with electronic receivable payments.
- Remote Capture helps companies that receive a higher volume of checks in the office accelerate their deposits and avoid time spent in delivering deposits to the bank.
- Lockbox Services removes the time-consuming burden of depositing paper checks for tech companies that receive payment through the mail and improves receivables float.
- Commercial Card Services allow companies to extend their payables cycle with up to 55 days of float, depending on the financial institution. Generally, companies receive the statement at the end of the month and have an additional number of days to make the payment; terns will vary across financial institutions.
Treasury Management for Tech Companies
Of course, every company is different, and quite often companies adopt the use of various products and services at different times. Like many industries, technology companies have unique cash management needs that change as they grow and evolve. Treasury management expertise and offerings can help tech companies start off on the right track and build a solid foundation for future growth.
Connect with First Republic today to learn more about our comprehensive suite of treasury management offerings for fast-growing technology companies. First Republic offers all of the treasury capabilities mentioned in this article, and our treasury consultants can help determine the mix of products and services that best match your company's needs.
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