Treasury thinking for small business: Optimise your cash

This article is for general information purposes and not financial advice or a recommendation to take any action. 

Many of us at Earnr used to be bankers to some of Australia's largest companies and highest net worth families.

We've helped these large groups optimise their treasury for decades and want to pass on a few best practices we think can help move the dial in your business.  

In larger enterprises, every single dollar is forecast, tracked and optimised. The right treasury strategy can unlock millions in capital efficiency. 

Whilst small businesses may not have formal treasury or even finance departments, the principles should still apply. 

Getting your treasury strategy right can drive meaningful financial outcomes.

Treasury is a culture, not just a function

Corporate treasury is more than just spreadsheets. It’s a culture of control, visibility, and intention. Corporate and large family office treasuries work every single cent in their favour - they don't see cash as something passive, rather as a strategic asset.

Smaller businesses can adopt this mindset too by treating cash as something that should be actively monitored, managed, and optimised at all times.

Forecast and stress test

Good treasury teams build forward-looking cashflow models across multiple scenarios - seasonal shifts, customer cycles, macroeconomic changes.

Small businesses can do this too, efficiently. If you're a small business you should consider:

• Building a 12-month cash flow forecast
• Identitifying periods of liquidity pressure
• Identitifying periods of surplus liquidity

This enables proactive decision making - you can be confident of quickly assessing challenges and opportunities as they arise.

To not do so is like driving a car with a dirty windscreen.

Liquidity first, then yield optimisation

In corporate treasury, liquidity is non-negotiable. Treasurers keep enough accessible cash to meet obligations, even under stress, before seeking higher returns.

Small businesses should:

• Define a minimum operating and liquidity buffer
• Optimise yield on surplus cash
• Ensure cash investment terms fall within expected cash access needs 
• Understand that every 1% matters: Improving returns by just 1% or 2% per annum can translate into hundreds of thousands or even millions in added value.

Next steps:

Great treasury teams have clear rules for liquidity, surplus thresholds, and target returns to ensure quick decision making and consistency.

Segment your cash into:

• Operating capital for near-term expenses
• Liquidity buffer for risk management and stability
• Surplus cash that can be invested

Then, implement thresholds for each segment, and set a review date on your thresholds - for example semi annually or annually.

Tip: a great time to review your thresholds is when you update your cash flow forecast.

Let's look at a simple example:

• Your operating capital + liquidity buffer may total $400,000 but you are holding $925,000 in cash
• Your cash flow forecast (which should include one off items) further supports that you don't need more than $400,000 in operating and liquidity buffer capital over the next 12 months
• This leaves $525,000 available to optimise over 12 months.

You could invest those funds in an Earnr 12 Month Term at 7.20% p.a instead of a transactional bank account paying 2.5% p.a.

This could give your business nearly $25,000 in additional earnings before tax over that 12 month period.^

If you multiply this across several accounts or related businesses - the impact becomes very material.

For a small business, this could be the difference between an office upgrade, paying staff bonuses, or a new part time employee.

Conclusion - small shifts make a big impact

You don’t need a fancy treasury department to act like one. But you do need to be deliberate and implement a simple framework.

You'll be surprised how much of an impact you can make to your business earnings, and, how many other opportunities you'll unlock, as the exercise makes you critically think through your business.

Using a platform like Earnr can really help.^ Earnr's suite of account types can help you segment and manage your surplus cash for different liquidity periods and return needs.

Remember to always read the product disclosure statement and target market determination for Earnr, and if you want to know more about how our accounts work - book a meeting with an Earnr Account Specialist here.

The information in this article is intended to be factual though may also contain the opinion of the author. Whilst every effort has been made to ensure accuracy, we take no responsibility for any errors or omissions. Any opinions are those of the author alone and not a recommendation to take any action or obtain any product. You should consider whether this information is appropriate for you and obtain independent advice before making any decisions.