These days, having a defined investment plan is critical to businesses of all sizes.

The financial landscape is always changing. The Federal Open Market Committee is in the process  of increasing the Fed Funds target rate over the next several years, and the Securities and Exchange Commission’s new Money Market Mutual Fund rules will likely result in changes to the investment alternatives available.

Now is the time for businesses to prepare for these types of events. A solid, documented business investment strategy can help you better respond to the opportunities and any potential disruptions that may occur.

What is an investment policy statement?

A defined investment policy statement is the cornerstone of most successful investment strategies. It is generally understood that an investment plan can help you maximize profitability, drive efficiencies, and reduce business risk. But there are also many real-world applications where an investment policy statement will add value by guiding real-time decision-making. 

Your investment policy statement provides a roadmap that lays out your investment strategy and objectives. It reflects your risk profile, recommended asset classes and benchmarks, suitability factors, as well as any other specific investment considerations, requirements and constraints that may be unique to the nature of your business.

Whether you establish a formal and detailed policy, or just an informal statement, this document serves as the basis for your short and long term investment strategy. And, creating it doesn’t have to be a daunting task. Just establishing what you need to achieve, what types of investments are suitable for your business, and how much risk you are willing and able to take on can often be enough of a start. But it’s an important start and not one to overlook if you want your investment strategy to succeed.

There are four reasons to implement your investment policy now.

Here are a few of the most compelling motivators that may inspire you create your investment policy. 

1. To Capitalize on Today’s Opportunities

By outlining how to you plan to manage your company’s liquidity in the short, mid and long term , you can more precisely appropriate funds to deliver stronger earning potential and liquidity immediately. Regular reviews of your plan allow you to make necessary adjustments and respond to market opportunities more quickly. An investment policy can also help maximize profitability to reach shorter-term goals, like funding additional staffing and other capital expenditures.

Without executing on a policy, you’re not putting your cash to work – and you could be missing those opportunities. Having a clear picture of how you allocate cash to meet your firm’s short, mid and long-term  needs can help ensure you have funds available when you need them for both expected and unexpected expenses.

2. To Fund Future Purchases

A smart investment policy offers more than a means to attain short-term goals – it can help set you up for future success. For instance, your business plan might call for a large purchase in four years, like an additional facility or new equipment. You know roughly how much that purchase is going to cost. Why not earmark some of your cash reserves today for investment in a long-term, high-earning vehicle to generate funding for the financing equity tomorrow – or maybe even the entire purchase?

3. To Pay for an Unexpected Expense

Activities like damaging storms, repairs and economic downturns can happen without warning. How would you deal with such an event? You can carry business interruption insurance, which can be cost-prohibitive. You can access credit or long-term, locked-in funds, which will likely result in additional costs. Or you can supplement through wise investments to help mitigate your costs. A smart investment policy can help you keep certain funds accessible, which will minimize fees while helping generate coverage for the unexpected.

4. To Ensure Smooth Management Transitions

Turnover is a normal part of business. The financial decision makers you have today might not be making those decisions in the next year or two. A clearly outlined investment policy can smooth those transitions. Serving as an investment philosophy GPS of sorts, your policy sets expectations about what’s acceptable and what’s not in terms of risk and returns. This helps stem chances of a new decision maker applying an aggressive approach that’s out of synch with your company’s more conservative philosophy, or vice versa – either scenario could have a sizeable impact on your balance sheet.

Find out how we can help you get started.

Despite the value they offer, many companies, regardless of size, don’t take the time to develop an investment policy statement. According to the most recent Association for Financial Professionals (AFP) Liquidity Study, only 50 percent of privately held companies maintain a written cash investment policy, and that number drops to below 45 percent for companies with less than $1m in revenue.1

It’s clear that investment policies can play an influential role in propelling your business towards success. The good news is that implementing your policy doesn’t have to be as complicated as it seems. We can help you get started.



1 Data from 2015 Association for Financial Professional’s Liquidity Survey.

This article is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.


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