Author Topic: Financial Advise - Where To Put Cash  (Read 1183 times)


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Financial Advise - Where To Put Cash
« on: April 26, 2020, 04:46:34 PM »

I have been around this site for years and recently came back around to it. I lost my old username and password so starting anew. I wanted to see if anyone had a few minutes to give a little bit of advise to my situation. I will give a brief synopsis and then look forward to any responses you may have.

I am a general contractor specializing in commercial remodels in Oklahoma. I started the business back in early 2016 and we have luckily been steady ever since. Last year was our largest revenue year, doing about $2,500,000 in total sales. We make a good living and have low overhead costs as I work from home still thus far. With the Covid-19 stuff going on though I see a likelihood that our market is going to be hit as I've already seen slowing of bids, etc. So I'm trying to be somewhat cautious with my investments, but I feel I have too much cash on hand even with needing cash flow for my business.

I currently have about $152,000 in cash in a high yield savings account through American Express, $100,000 in a high yield business savings account at my bank, $50,000 in a standard personal savings account, and maintain around a $50,000 buffer in my business checking account typically. I did apply for the PPP loan and due to only my wife and I being considered actual employees of my business I could only qualify for about $30,000, so assuming all goes as planned I should get that in the coming weeks. I would obviously leave that in the business account for cash flow purposes as it is intended. I also have about $40,000 coming from refinancing our home with the lower interest rates. I cashed out a little of our equity in case we needed money in a pinch. Our home is worth about $500,000 and we currently owe about $335,000. I'm refinancing at over 1% lower rate for about $384,000. We have only lived in the house for 2 years and the rate being right around 3% I figure that $40,000 could be invested or put to good use somewhere in case we needed it. I still plan to pay the house off in 15-20 years.

So with all of that it leaves me with around $342,000 in cash not counting the $30,000 PPP loan money or any money in my business checking account. Keeping in mind $100,000 of that is in the business savings account as a back-up for business cash flow. Being in the commercial construction business some invoices are paid in 30 days but many drag on further, so I do have to maintain that cash flow back-up in some form.

What would be your advice with these cash funds at least for now? I would love to invest in a commercial property at some point but with the market and business outlook somewhat bleak I am worried about tying up a bunch of money somewhere I couldn't get it down the road. Should I just put it in some sort of basic investment account or something else? I have a 401k set up through the business for my wife and I that has about $100,000 in it currently that I started putting money in to back in 2017 a little at a time and last year put in almost the max to really bump it up since we had a good year. I put at least $1,500/month into it as well. I also have an old S-IRA I have about $25,000 in that I haven't put anything into since I left my previous job in 2016.

I probably am leaving out information you may need or something so just let me know if there is. I appreciate anyone taking the time to read and provide any pointers or advice. I just hate to have so much cash sitting in these high yield accounts but I also tend to be a little nervous in times like this to invest it all or put it in something I can't get it back out if needed. I am new to making this kind of money so trying to be as smart as possible with it. Thanks!

***EDIT: I also own a property/cabin in Norther New Mexico in the mountains that is wort around $240,000 - $275,000 that I still owe about $30,000 on. I contemplated paying it off this year as well, but haven't made that decision yet.

« Last Edit: April 26, 2020, 05:05:27 PM by GRJA4OK »


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Re: Financial Advise - Where To Put Cash
« Reply #1 on: April 27, 2020, 07:01:48 AM »
First of all I would be very cautious about any responses that aren't from a constructions general contractor (my dad is, but I'm not, so take my response with a grain of salt too) because you need to keep enough operating capital for your business. I assume you have large material and labor outlays that you have to float until those 30 or more day invoices are paid. You probably have a better sense of how much you need available for that than most anyone on this forum, so you should probably separate out what you need for the business and what is personal cash. If you need help with this, then a construction forum with a business section like is probably a better place.

I wouldn't count on the PPP. It's great if you get it, but lots of businesses aren't. Also, I know you said you're planning to keep it your business account, but make sure you pay out appropriate amounts to yourself and you wife as salary if you're trying for forgiveness as that's how forgiveness works. You want to have a paper trail showing you used it for the purposes that allow forgiveness.

Since you see a slowdown coming, in addition to operating capital, make sure you keep enough cash in the business to pay any obligations over the coming months or years. Construction (really all business) is cyclical and those that can weather the storms are those that are still alive on the other side when some of their competition is no longer there to compete with.

On the personal side, you're looking at some employment uncertainty, so you should evaluate your employment prospects if you can't keep the business going (or at least can't keep it going at the same rate). If your projects dry up and other construction companies aren't hiring do you have other skills? Are you a skilled tradesman yourself such that you could take on small handyman jobs that you don't hire out if margins are too thin? Same sorts of questions for your wife. Since you're both employed by the business you have some concentrated risk there, so I would want to have a larger than average emergency fund. Maybe a year or more of barebones expenses?

After all that is taken care of I'd probably just put any cash in stocks, but especially with your professional expertise I think an argument could be made for holding the extra cash if you see a downturn in commercial real estate coming and you want to get into that. In that case make sure you have enough both for the purchase, for any work you'll do on the building, and to sustain an extended vacancy. As with the business, if you can get through a tough time you could come out in a really good position on the other side, and a slow time for your business could be a great time to do some work on a property you buy if you can afford it.


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Re: Financial Advise - Where To Put Cash
« Reply #2 on: April 27, 2020, 12:58:03 PM »
I didn't see a "burn rate" mentioned for the business.  COVID-19 has meant many businesses lose -80% to -100% of their sales.  Under those assumptions, can your business last 2 years worth of costs?  I assume the business is set up in a way that if the business goes under, your personal liability is limited?

Most personal finance gurus top out at 12 month emergency funds, which may or may not apply to a business.  On CNBC I heard a CEO saying their company could survive 2 years of COVID-19, which made me reconsider my worst case scenario as 2 years.

There was a recent stock market bottom on March 23 where the US market was down -32% for the year.  Right now the US stock market is down about -12% for the year.  It may be worth investing some, but not until your businesses burn rate is known and looks manageable.


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Re: Financial Advise - Where To Put Cash
« Reply #3 on: April 27, 2020, 02:37:25 PM »
Far from an expert here, just a subcontractor bookkeeper from long ago who later took a few business classes. So, grain of salt.

Hearing the total volume of your business makes me imagine that the prudent reserve for business cash flow variances is a lot more than $100,000. After all, $200,000 is barely one month's average revenue. What if COVID shutdowns drag on for months more instead of weeks, or the virus spikes after lockdowns end, and your customers stiff you for a couple months' worth?

I guess it depends on how much float you have. How many weeks of business spending would you incur in the event that customers stop paying, before you shut your business down in order to stop further expenses? I would keep that amount in cash, plus enough more to fund a slow transition (6 to 12 months) to something else if real trouble develops.

In uncertain times like this, for money whose purpose is short term security not long term investment, I think the kind of accounts you're using are appropriate because the safety and liquidity are more important than yield.

Buffaloski Boris

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Re: Financial Advise - Where To Put Cash
« Reply #4 on: April 27, 2020, 02:56:08 PM »
 I gotta ask the question: so whatís wrong with a cash position right now?

I donít like to give specific advice, but I will outline my thought pattern if I were in the OPís shoes. The OP is in Oklahoma (read:oil) and the construction industry which tends to get hit early and hard in recessions.* So if Iím the typical construction guy in Oklahoma, Iím about ready to crap a brick because I see the COVID 19 steamroller headed my way. But Iím not crapping bricks because Iím the OP and Iím sitting on an incredible cash stash and watching as a fire sale is coming.

So Iím not dorking around with the stock market and itís bloated PE ratios. Im also not paying down squat on my loans as interest rates are probably coming down and I can likely refi at a lower rate. Iím thinking about my wish list of equipment and properties I want to buy when I can get them on deep discount in say 6 months to a year. The OP has something I donít have: technical skill in construction. And he has the cash to invest. Wow.

*(itís probably a depression, but whoís counting?)


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Re: Financial Advise - Where To Put Cash
« Reply #5 on: April 27, 2020, 03:43:15 PM »
+1 to @Buffaloski Boris post.


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