Ecom CFO Notebook – excess cash management

Welcome to this issue of Ecom CFO Notebook – a weekly letter for 7–9 figure ecommerce founders and CFOs, sharing my perspective and stories for profitable growth.

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Sam here.

I’ve got about $110,000 in my checking account earning zero percent.

Meanwhile, there’s $600 sitting in my treasury account earning 3.42%.

I’ve been talking to clients more about managing cash this year — helping them set up treasury strategies, walking them through the whole process. But I’m not eating my own dog food.

So this one’s for me as much as anyone else reading. A reminder that knowing what to do and actually doing it are two different things.

The good news is this doesn’t need to be complicated. For most companies, we just need to answer two questions, set aside one day of setup, and then it (mostly) runs itself.

Why this matters right now

Q4 means cash positions are at their (hopefully) highest point of the year for most ecom businesses.

All that holiday revenue will soon be sitting in the bank, inventory payments were made before Chinese New Year, and ad spend normalizes after the push.

It’s also worth noting that rates have been dropping. The Fed signaled another rate cut this week. The window to earn meaningful yield on idle cash is getting narrower, so if this has been on your list of things to figure out, now’s a good time to actually do it.

Question 1: Do I actually have excess cash?

This is the first question that needs answering, and it’s trickier than it seems.

I spoke to a $100M cleaning products company last month.

Good profitability, healthy cash position on the surface. But they’ve been personally funding the business with loans, and they want to reduce that personal risk. They’re looking to set up a line of credit instead.

The point being just because there’s money in the bank doesn’t mean it’s actually available to optimize. Looking at the balance and feeling good about it is different from knowing what can actually be put to work.

The only way to know

You’re probably sick of hearing me say this but it’s the 13-week cashflow forecast.

Map out every inventory order, every payroll, seasonality, supplier terms, potential ad spend spikes, tax payments, and any other commitments coming down the pipeline. What’s left after accounting for all of that? That’s the excess cash.

I used to think that if a business had a strong balance sheet, the 13-week forecast wasn’t really necessary. I’ve changed my mind on that.

Margins are getting tighter. Inventory orders are getting bigger. Terms aren’t improving. Strong cash positions can evaporate quickly when scaling, and even if the business is profitable, there needs to be a clear answer on how much can safely come out without creating downstream problems.

Excess cash isn’t “we’ve got $2 million in the bank so we’re in good shape.”

Excess cash is “our 13 week cash flow shows there’s $800k that won’t need to be touched for at least 90 days.”

Without the forecast, it’s guesswork. And getting it wrong means either leaving money on the table or pulling cash that’s actually needed and scrambling a few weeks later when payroll comes due.

Question 2: What’s the 80/20 move?

Okay, so we’ve determined there is excess cash. Now what do we do with it?

There’s always a balance to strike between risk, return, and time.

Safest/fastest: high-yield savings, treasuries, money market accounts. One to two day liquidity at ~3.0% to ~4.0%.

Middle: CDs. Longer term, slightly better returns, less liquid.

Higher risk: Short term corporate bonds. More return, more complexity. I see 0% of clients doing this and I would generally not recommend it.

And then there’s stuff that should be completely off the table for business capital in my opinion: equities, crypto, Bitcoin, real estate. The cash we’re talking about is for the business and I believe these investments should be made personally.

The 80/20 answer

For 90% of companies in our space, a sweep account or high-yield treasury account is the set-it-and-forget-it best answer.

Mercury, Highbeam (+1 for David their President), and Rho — they’re all focused in this space right now. You’re looking at yields in the 3.0% to 3.75% range, they’re all extremely liquid, and they all require minimal ongoing effort once you set them up.

Personally, I like the sweep account option because it requires the least amount of brain damage transferring funds back and forth manually.

I hear alot of questions from clients about how it actually works so I created a diagram to explain.

All the business’ revenue — Shopify, Amazon, PayPal, wherever — lands in an operating account and you set a target balance, say $200K.

The system checks the balance daily:

• Above target? Moves extra to Treasuries.
• Below target? Moves money back before you open.

It requires setting the target once, maybe adjusting it monthly as the business changes, then everything runs automatically.

My treasury management rules

Never switch platforms just to chase yield.

When I set up my treasury account, they showed me different portfolio allocations I could choose from.

I could’ve gotten 3.64% instead of 3.42% if I wanted to select a different risk profile.

But I’m not going to waste time researching the different funds and comparing one company to another for just a 0.22% difference.

Now if someone’s sitting on $50 million in cash, sure, maybe that quarter point starts to matter. But for most businesses — pick something that’s good enough and move on.

Treasury management is not a competitive advantage.

Competitive advantage comes from better marketing, better creative, and better product launches — that’s where the most effort and attention needs to go.

Treasury management is not going to take a business from 5% EBITDA to 10% EBITDA.

It’s a nice-to-have that should absolutely be done, but it shouldn’t cause founders brain damage trying to optimize every basis point.

Something beats nothing, even if it’s not perfect.

Even if there isn’t a perfect 13-week cash flow forecast built out yet, treasury management can still be done.

It just requires some educated guesses about the business’ cash needs. As long as you’re maintaining at least a three-day buffer between when cash moves and when bills are actually due, you’re going to be fine.

Set it up to understand how it works and start earning something on that idle cash. You can always optimize and tighten things up later once there is better visibility into the cash flow.

What to think about this week

It’s worth taking a look at the bank accounts to see how much cash is just sitting there (or will be) earning nothing.

The first step is just answering that first question — is there actually excess cash after accounting for everything coming down the pipeline? That might take 30 minutes with a spreadsheet, or it might surface the fact that a proper 13-week forecast needs to get built first.

Either way, that clarity is worth having. And if the answer is yes, there’s excess cash available, then picking one of the platforms and getting it set up is pretty straightforward.

I’m planning to finally handle this on my end soon. Maybe we both can stop leaving money on the table.

Talk next week.

— Sam

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