One way that startups can use their available cash more productively is through a bond ladder. A properly structured bond ladder can help you achieve some return, while protecting your capital and maintaining liquidity. A bond ladder is a portfolio of bonds and securities with maturity dates that are staggered to mature at key dates so the cash is available when you need it. Generally you’ll want a mixture of Treasury bills (which have short maturities from 13 weeks to a year), certificates of deposit (CDs), or even zero-coupon bonds. CDs are insured by the Federal Deposit Insurance Corporation (FDIC), and Treasuries are backed by the US government, so your funds are very safe. And, if you run into unforeseen expenses, you can usually cash out any of these by paying a small penalty.
How Startups Can Use Bond Ladders For Financial Stability
Startups often face the challenge of balancing liquidity and growth. While it’s tempting to keep all available cash in a business bank account for flexibility, that money typically earns little to no return. At the same time, locking it into long-term investments risks losing access to funds when you need them most. A bond ladder offers a middle ground – it allows startups to maintain liquidity while earning steady returns and reducing risk.
Why Bond Ladders Matter for Startups
For startups in their early stages, effective capital management can mean the difference between smooth growth and a sudden cash crunch. Having a predictable income stream and easily accessible funds can provide a safety net for payroll, inventory, marketing, or unexpected expenses. This is where a bond ladder can play a strategic role.
Bond ladders spread out maturity dates among several bonds, so portions of your investment regularly come due and become available for reinvestment or operating needs. This steady rotation helps maintain cash flow while still generating yield from safe, fixed-income securities.
Manage Your Capital with Bond Ladders
One way that startups can use their available cash more productively is through a bond ladder. A properly structured bond ladder can help you achieve some return, while protecting your capital and maintaining liquidity. A bond ladder is a portfolio of bonds and securities with maturity dates that are staggered to mature at key dates so the cash is available when you need it. Generally you’ll want a mixture of Treasury bills (which have short maturities from 13 weeks to a year), certificates of deposit (CDs), or even zero-coupon bonds. CDs are insured by the Federal Deposit Insurance Corporation (FDIC), and Treasuries are backed by the US government, so your funds are very safe. And, if you run into unforeseen expenses, you can usually cash out any of these by paying a small penalty.
Steps to Implement a Bond Ladder Strategy
- Assess your liquidity needs. Determine how much cash your startup must have readily available each month or quarter.
- Choose the right maturities. Consider short-term Treasury bills and CDs that align with your projected funding milestones or expense cycles.
- Diversify maturities. For example, you might invest equally in bonds maturing every three months, ensuring periodic access to funds.
- Reinvest as bonds mature. When one bond matures, reinvest it into a new bond at the long end of your ladder to keep the structure intact.
A Powerful Financial Tool
Bond ladders are simple yet powerful tools for startups seeking to safeguard their cash while earning modest, low-risk returns. By combining liquidity, capital protection, and predictable income, they allow founders to focus on what matters most – building and growing the business.
