Timeless treasury management advice from a CFO

In the world of startups, cash isn't just king—it's survival. Here's how to keep it safe.

First, you’ll want to start dividing your company’s cash reserves into categories, and thinking differently about the money you need to run daily operations—known as operating cash—and the money you need long term to grow the business—your strategic cash. 

Operating cash gets tied up in daily business operations. It isn’t very flexible. It’s the money you receive from customers and the payroll you’ve scheduled for next week. Whereas strategic capital is flexible and you can store or invest it in bulk. You’ll want to safeguard that cash—it is called “treasury” management for a reason.

In this guide, we explain how to manage all of your cash, both operating and strategic, including the banks you should consider and how to best use a treasury account.

Grow your capital but don’t lose it

Use your cash to make more money, but don’t be too risky. Invest some, but keep enough available to fund operations. 

You can think of your priorities in this order: 

1. Preserve capital

Your job is to keep your cash safe so it can be used to fund your business. You never want to risk funds in something that could lose value like stocks, to say nothing of experimental investments like cryptocurrencies. Because what if the market drops suddenly? Can you imagine explaining to your investors your runway is now 20% shorter?

2. Ensure liquidity

Park your money somewhere you can access it to fund short-term operations. That means avoiding illiquid investments like real estate or Treasury bills (T-bills). That said, a money market account that functions like a checking account but invests in T-bills can offer the best of both—you earn more interest, but your money stays liquid.

3. Earn the best yield

You must invest the bulk of your money in some way—if you aren’t investing it, you’re losing 3% per year to inflation. A high-interest checking account at a bank can offset that and grow your strategic cash faster than inflation. Or you could invest it. But there is a reason optimizing yield is last in your list of priorities. No investor will care if your strategic capital is earning 4% versus 4.5%. They will care greatly if you lose large sums on speculative investments. Your job as a founder is to grow your business, not run a hedge fund.

I’d add one more requirement: Managing your cash shouldn’t require a lot of time. A founder should spend no more than one hour on treasury management per month. The more you can automate and simplify, the better—which makes it worthwhile to carefully evaluate each bank’s offerings.

With those priorities, let’s discuss how to divide that cash between different accounts.

Use multiple banks and accounts

Your startup should have several accounts at several different banks. Diversifying across several institutions is important—the banking crisis of 2023 should remind us that no bank is eternal. Institutions can collapse and accounts can get locked. This is why I recommend every founder maintain: 

• A checking account at bank A with three-months operating expenses
• A backup checking account at bank B with two-months payroll

Run everything out of bank A—pay credit cards, process payroll, and receive money from customers. But have bank B ready and that reserve cash available. That way, if anything catastrophic happens, you can pay your employees and quickly transfer money as needed. No need to get overly clever about this setup—it should be simple enough that you know your operating cash on hand every day.

That covers your operating cash. But what do you do with all the rest of the money—your strategic capital? All that remaining capital is your “treasury” and you’ll want to select a treasury management product from a bank that ensures you’re achieving your priorities: preservation, liquidity, and yield. This is account number three:

• A treasury management account at bank A, B, or C

This probably means you’ll find a bank that offers an account called “treasury” or something similar, with access to investing in T-bills and CDs, but also your money, so it remains liquid. Ideally, this account will use what are known as “FDIC sweeps”—the FDIC insures up to $250k of your money in any given bank account. Smart banking products can “sweep” or collect all money over that and place it in another account that you have access to, so by extension, every $250k chunk of cash is insured. (And move it back, when you fall beneath that threshold.)

We discuss your bank options next.

Which bank should you select? 

There are three types of bank you could choose for your operating and strategic cash accounts. Each has tradeoffs.

1. Conventional retail banks‍
‍Such as JPMorgan Chase, Wells Fargo, and Capital One

These are old and enduring. If JPMorgan Chase fails then we all have much bigger problems to worry about. Use retail banks where you want to preserve your capital, and insofar as they’ll work with you. (They often aren’t set up to serve startups.)

2. Startup banks 
Such as Silicon Valley Bank (SVB) and Bridge

These are conventional, nationally registered banks that happen to cater to startups. They are willing to lend credit to businesses without positive cash flow and to make exceptions like allowing overdrafts during cash crunches. If you have raised a significant venture round, consider a startup bank as your primary. That said, they are not necessarily as stable as retail banks. (See the 2023 banking crisis.) Have a retail backup.

3. Neobanks 
Such as Mercury, Rho, and Brex

These are primarily software companies with great interfaces which tend to rely on traditional banks for their “back end,” which are the actual entities registered with the SEC. Even though your money may be insured by the FDIC through partner banks, neobanks carry more risk—they are inherently less stable than traditional or startup banks. But you’ll move fast and enjoy the banking experience. You can easily invite team members, issue virtual cards, and link to your financial tech stack.

If you prefer an intuitive user interface and aren’t as worried about the fact they are the least stable option, they are a great primary choice.

When in doubt, I’d always recommend erring on the side of stability. Smaller, newer banks may offer excellent integrations and features but are less of a guarantee. For example, the neobank back-end provider Evolve made a partnership with another neobank that collapsed and tied up $96 million in customer funds. (Which were eventually returned.) 

That said, the old banks don’t necessarily make things easy. Startup-focused banks will likely offer relevant additional prices such as lines of credit, debt financing, revenue-based financing, and venture debt, which provide you options and allow you to move fast.

Given all of that, here are the banks we recommend looking at.

Questions about banks and treasury management?

Let us know at info@pilot.com.