If your company generates more cash than is needed to fund short-term obligations such as accounts payable and employee salaries, you may consider investing excess cash so it doesn't sit idle. The vehicle for doing so is the corporate investment account. As a general rule, companies have a mandate to maximize shareholder returns. If, as a manager or principal owner, you are unable to find acceptable strategic investment opportunities, you should invest excess cash in marketable securities.
There are three basic types of corporate investment accounts. One is an interest-bearing account that allows you to earn interest income while retaining the ability to access the money if need be. This is a sort of hybrid checking and savings account. Another option is a business certificate of deposit account, which is a fixed-term account that typically requires a minimum of $10,000 to open. Finally, a brokerage account allows you to invest on behalf of your company in stocks, bonds, mutual or exchange-traded funds and structured investment products.
Companies often use investment accounts to hedge against financial losses stemming from changes in interest rates, currency rates and commodity prices. If you are engaged in hedging, maintain a separate investment account to simplify accounting for hedges. Also, if you open a brokerage account, decide whether you or an investment advisor will manage the account. If you manage the account, you will need to devote time to investing decisions. You can minimize risk by diversifying your company's asset allocation.
