How to Treat Short-Term Treasuries on the Balance Sheet

A lot of startup companies are buying Treasuries directly through services like Treasure Fi, Arc, Meow, and other online services. After the recent banking crisis, startups are seeking ways to protect their financial reserves and, ideally, earn some yield on those funds. These debt securities are becoming increasingly popular among startups.

What is a Short-Term Treasury?

These securities are called different names, but short-term Treasuries refers to Treasury Bills. These are short-term bonds issued by the US government that mature between four and 52 weeks. A short-term Treasury is a debt obligation that is very low-risk. You can buy them directly through the services we just mentioned as well as services offered by Mercury, JP Morgan, and other financial providers. The accounting treatment for these debt securities is straightforward due to their short-term nature.

It’s a very popular form of cash management since the best credit in the world is the United States government, and they’re paying pretty high yields for short-term securities – as high as 5% currently. The fair value of these securities is often close to their purchase price due to their short duration.

Treasuries Should be Treated as Cash Equivalents

Fundamentally, Treasuries are very liquid and that’s part of the reason why they should be treated as cash equivalents. They are also called short-term marketable securities, meaning you can get out of them easily and there will be very little loss if you have to sell them. Therefore, yes, short-term Treasuries should be treated as cash equivalents on the balance sheet. The accounting treatment for these securities often involves recognizing interest income and accrued interest.

These Treasuries need to be included in your burn rate and runway calculations. Your runway calculation is your startup’s total cash divided by the average burn rate over the last three to six months. If you don’t include your Treasuries in your runway, it will start to look alarmingly short and your VCs might start to panic! This is especially true for SaaS companies, AI companies, biotech companies and other startups that need to manage their capital efficiently.

Treasuries Are Important Cash Management Tools

The recent banking crisis has made startups acutely aware of the limitations of FDIC coverage for their cash reserves. Many are now developing investment policies that include Treasuries as part of their cash management plan, and they are investing their cash reserves in low-risk Treasuries or government money market funds. All of the best startup banks can help you allocate your reserve cash into financial products that can help protect your funds and earn some yield. The fair value of these investments is often reflected in the financial statements.

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