The Federal Reserve continues to hold interest rates steady, so you’d expect startups to benefit from increased interest on their cash balances. However, many venture-funded startups are still earning shockingly little on their banked cash – a missed opportunity for founders looking to extend their runway and boost operational flexibility.
The Real Barrier: Proactivity
For most startups, the main thing standing between them and better returns isn’t market conditions – it’s action. Many founders keep their company’s funds in low-yield checking or generic savings accounts, where rates often lag well behind what’s available in the market. Banks are slow to raise yields unless pushed – their interest expense is a significant cost, and inertia works in their favor.
If you want higher returns, you need to initiate the conversation. Simply calling or emailing your banking representative to ask about higher yield options can make a major difference. Kruze Consulting has seen first-hand how startups can unlock additional income by proactively querying their banks – sometimes with just a short phone call.
Don’t Rely on Automation (Without Oversight)
Some startups are using money market funds or automated cash management tools, but even here, inertia can be a problem. Not all money market or sweep accounts automatically track the best available rates. If you don’t ask, you could leave a lot of cash on the table.
Modern automated cash management platforms have improved this situation by reinvesting in higher-yield securities as rates rise, but it’s still critical to ensure their strategy matches your board-ratified investment policy and prioritizes safety. Never sacrifice capital preservation for a small yield boost. Need help developing an investment policy statement? Check our guide to creating an investment policy, with a free example you can download.
Why Taking Action Matters
Small rate increases can have outsized effects on your operating budget. For example, a $10 million balance earning 2.5% rather than 0.5% generates an additional $200,000 per year. That’s capital that can be deployed toward hiring, growth, or extending your burn.
Recommendations for Startup Founders
- Review: Check the yield on everyoperating and reserve account.
- Ask: Contact your bank or provider for higher-yield options or updates on your money market funds.
- Follow Policy: Make sure all cash management aligns with your investment guidelines – avoid risky instruments.
- Monitor: Regularly revisit your cash yield and proactively seek improvements.
Proactivity, not policy or product, is the biggest barrier to earning a return on your startup’s cash. In today’s environment, taking a few simple steps could add meaningful value to your company. If you need help evaluating your cash management strategy, connect with Kruze Consulting for up-to-date best practices.
