Ask HN: What do you do with cash savings in your business bank account? | Hacker News Reader

Ask HN: What do you do with cash savings in your business bank account?

8 pointsthroway_sm_llc13 comments

We're a small business, not really a start-up anymore, but we've been accumulating cash over the years by paying ourselves way less dividends than yearly profit. Its reached $500k and it is starting to be a concern that we're not leveraging this amount. We are happy to have cash available in case of a bad year, it would keep us going 2-3 years in case of no income at all, but we wonder that the bank is not the place to have it, especially in U.S. banks with 0.5% interest.

We would be happy to put a large chunk of this somewhere where we couldn't access it immediately (say, within 30 days) as we all agreed to keep enough personal cash available from dividends in case of emergencies. We don't really have much outgoing to worry about.

Given the low business tax rate it is much better to keep it with the LLC, than distribute as dividends, is that correct?

We are all happy with our modest incomes as we don't work very much and we have a great work/life balance. So investing in more business, that would make us work more hours, isn't really our interest.

What do other small LLCs do?

Open a brokerage account under your LLC and do 40% bond, 40% S&P 500 index funds, leave max 20% cash in the savings. If you're running a business in the US, that means you believe in the US economy. So betting on the US industry being successful in the future makes total sense. And it could bring up to on 8% average, while bonds would cover for potential losses.

The US stock market is very highly priced when compared to historical prices from all other periods. There's a lot of room for US stock prices to go down and little room for stock prices to go to up.

It might be fine to put money into the US stock market if one is prepared to leave it there for a very long time in the event that market prices crash, but it sounds like the OP was talking about time horizons of months not decades.

http://alephblog.com/2018/03/14/estimating-future-stock-retu...

http://www.philosophicaleconomics.com/2018/01/future-u-s-equ...

Reminds me of JL Collins

https://youtu.be/eikbQPldhPY

Your advising the opposite of hedging? Let’s say US economy turns, you have now multiplied your risk.

Index funds go well with a dollar cost averaging strategy. If it goes down, keep buying the same amount every month so you endup acquiring more at a lower cost... which means when (and not if) it goes back up, you amplify your original gains.

Honestly within the next 20-30 years, if the US economy goes down, it’ll most likely recover. If not, we’re talking asteroid or major natural disasters.

The OP said 30 days not years.

What do you mean by years? OP is looking for money accessible within 30 days max. You can take your money out of any of the investments I mentioned instantly. Sure, the "investment strategy" is the long term thing here.

I second this, some brokers even pay a decent interest rate compared to banks.

(speaking from the perspective of an individual, not a small business)

you could consider putting it into some kind of investment, owned by the company.

given that you talk about putting it somewhere where you cannot access it immediately (30 days) it doesn't sound like putting it into the stock market would be appropriate -- if there is a large unexpected drop in the market you might not be able to withdraw the amount for years or a decade without taking a large capital loss.

there might be some middle ground (e.g. diversified bonds) with a rate of return of a percent or two with less risk than stock.

another option might be to look for unusual investment opportunities (e.g. buying out other small businesses). this is likely a terrible idea unless there is a niche where you think you have a particularly strong competitive advantage. this might end up in the "work more hours" bucket too.

You really need to talk to a good accountant that understands the nature of your business, your goals and the tax implications.

I don't know about US law, but in Canada there are distinct disadvantages to keeping large amounts of cash inside a operating small business corporation and you would potentially be better off distributing the cash or setting up a separate holding company for it (or rather having your lawyer & accountant handle that).

You can then invest within the holding company but keep your operating business and investments separate.

Ask your bank about money market or brokerage CDs. Short term cash investments that can yield upwards of 2% interest. But typically need to be held for longer time frames, say 12-36 months. No risk. Can be withdrawn at any time. FDIC insured. And you get the preferred rate.

Otherwise consider capex investments in your own company. These don't necessarily have to be aimed at growth. But little things can make your workers more happy, loyal and productive ;)

If you don’t have opportunities to reinvest the money to grow the business (which you should...), I’d start paying yourselves higher dividends. Why not try to grow the business though?

Put it in Treasury Bills (ticker BIL for example). Safe as cash if you believe the US government isn't going bankrupt. 1% yield at the moment.

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