A Small Business Owner's Guide to Managing Funds and Investments

As a small business owner grows over the years, one aspect of finance that they often overlook is that of the ability to use investments as a means of growing revenue, increasing net worth and building the overall financial security of their business. The majority of small business owners don’t even think about this course of action because they don’t know about it, because they don’t think that they can qualify for it, or because they are unfamiliar with how it all works.

TippaPatt | Shutterstock

© TippaPatt | Shutterstock
TippaPatt | Shutterstock

As of this writing, Q4 2022, rates are moving upward, which makes a larger purchase more expensive for a small business, and it also increases the cost of carrying balances on things like credit cards or other lines of credit. However, savings accounts and CDs will do better — but all of this could change and most likely will. So, the question becomes, how do you take advantage of this style of opportunity? And did you know that your bank, just like Key Bank’s liquidity management solutions, is designed to help you efficiently manage your short-term or long-term cash balances?


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When a small business owner is newer to this type of funds management method, going basic, short-term, is a great way to start. Maybe once there is a comfort level, you can look at more long-term aspects.

Related: The 5 Worst Cash-Flow Mistakes Small-Business Owners Make

1. Short-term

Short-term is just what it sounds like, but what that translates to (for normal people) is a year or less. This can be very beneficial for many small businesses as having funds tied up for a period longer than a year can often cause a negative impact on the annual fiscal operations of a business.

Short-term cash balances can be managed in three ways:

  • Operational cash: cash needed for day-to-day operations. These funds are generally held in a checking account or in investments that are very liquid and provide immediate access.

  • Reserve cash: typically serves as a cushion for unforeseen events. The investment strategy for this is fairly conservative, and the funds are usually held in a savings account.

  • Strategic cash: reserved for a particular purpose and period of time and is held in time deposits or liquid vehicles to achieve a higher yield. Our Relationship Managers work with you to determine the best combination of accounts to achieve your liquidity and investment goals.

Related: 5 Cash Management Tactics Small Businesses Use to Become Bigger Businesses

2. Long-term

Long-term investments are just what they sound like — longer than short-term. What that translates to is over one year. But truthfully, much of what makes investments short- or long-term is how they are used on your balance sheet and also when the investments are sold.

A common form of long-term investing occurs when company A invests largely in company B and gains significant influence over company B without having a majority of the voting shares. In this case, the purchase price would be shown as a long-term investment. However, that might not be up your alley as a small business owner. So, be sure to talk to your advisor to see if any of that makes sense for you now or in the future.

Here some examples of long-term investments for a small business:

  • Income stock strategy: a long-term strategy that includes a range of distribution choices intended at identifying well-known entities that provide above-average distributions without big risk of default, such as large-cap and blue-chip stocks

  • Growth stock strategy: aims to maximize the appreciation of all the stocks in the portfolio over a period of time, such as 10 years or thereabouts

  • Balanced investment strategy: intended at uniting investments in a portfolio so that the risks and rewards can balance one another out. Usually, the stocks and bonds are of equal percentages of the holding for this type of portfolio. This can be a good strategy for a small business owner with a medium-risk appetite.

  • Real estate: a great way to add assets to the long-term growth strategy of a business as it will increase in value over time making a larger profit when the owner sells the business.

Pro-tip: Small business owners usually never consider either long- or short-term investment management for their businesses. In fact, they never even open a basic Roth or Traditional IRA because they think “I’ll sell my business for millions!” Yeah, well, it usually never happens like that. So, get with your financial advisor soon, and see what steps make sense for your business to take to grow for both the short- and the long-term.

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