Putting your Cash to Better Use

If the word finance appears anywhere in your job title you probably didn’t get a lot of sleep in 2008 or 2009. And really, who could blame you? As the news predicted doom and gloom in the thought to be secure financial sector, consumer spending nosedived as consumers were worried about the safety of their deposits and financial futures. The relatively safe consumer packaged goods world saw a more frugal customer and the erosion of their market shares as private labels replaced brand names in household shopping carts.

This recessionary period inevitably shaped the experiences and more importantly, the risk tolerance of any senior level executive. The problem is that overly risk-adverse nature still exists today-4 years later. In a recent speech to the Canadian Auto Workers union on Wednesday August 22nd, Mark Carney, the well-respected governor of the Bank of Canada took a rare shot at Corporate Canada for sitting on $526B in cash that could otherwise be invested to fuel growth and job creation: “the level of caution could be viewed as excessive…their job is to put money to work…”

As is argued by Rocky Mountain Dealerships CEO Matt Campbell, there is still a lot of uncertainty in the world. the European debt crisis, having already toppled over Greece and handicapped Spain may spread into Portugal and unemployment numbers in the US continue to be high at 8.2%. While this may seem like a valid argument, there are two problems. First, as pointed out by Governor Carney, corporate executives underestimate the resolve of central banks, in this case the ECB (European Central Bank), to tackle the crisis. In fact, ECB President Mario Draghi hinted earlier this month that the ECB may start buying government debt to reduce the yields on Spanish and Italian debt. The second problem comes from the adage, ‘if you aren’t growing, you are dying’. US government T-bills, an instrument seen as a riskless investment and therefore equivalent to cash, are paying a mere 11 basis points on 3-month maturities. What does that mean? To make a million dollars you need to invest $998,900. With a Bank of Canada inflation target of 1-3% you are actually losing money by holding onto it.

So what do you do? You invest in core business growth.

This offers a chance to improve top-line revenue numbers, generate a higher return and create jobs (We have to keep Carney happy). To manage the risk, using a corporate trade company like Active allows you to return 3x the market value to excess inventory, capital equipment, and even real estate investments through the use of trade credits. These credits can then be used to strengthen your advertising budgets, shipping obligations, and your print packaging needs.

So where do you fit in this picture? Well, if your cash needs are already met, would you rather turn an asset into a $1 Million in cash today or $3 Million in cash in the next 12-months? As a shareholder, I know where I would stand.  To sum it up you could sit there worrying about the maybes of macro-forces or you can put in place a prudent risk management strategy that can drive growth in your business.