Households all try to keep savings on hand for rainy days. For some reason, corporations/companies seem to be exempt from needing to do that.
Are there any (non-bank) companies that make a practice of stashing a lot of money in a savings account of some sort, as a hedge against tough economic times, or do they pull a “2008 bailout” and try to strong-arm the government into bailing them out by pointing out the economic harm of them going bankrupt?
Except for the very largest companies, there really isn’t any ability to strong arm the government into anything.
My employer, a multi billion dollar company that still wouldn’t cause any kind of economic damage we’re it to fail, has about two weeks worth of expenses in cash, which is also about half the debt it carries.
But I would characterize it as more of an opportunity fund than a rainy day fund. It’s most likely use is an acquisition of a weaker, failing competitor.
In the UK, financial firms (not just banks) are legally required to maintain a certain level of capital and liquidity, in large part precisely because of what happened in 2008.
Many universities have significant endowments which far exceeded what one may call rainy day funds, and more like critical mass funds, that they can continue to operate in perpetuity from money made on their money.
Many Marijuana dispensaries are forced to have large amounts of cash on hand due to their lack of access to many tradition banking institutions. So much so that it has turned into a rainy day fund for thiemeselves and for thieves.
My company has a revolving credit facility that we can draw on when times are lean and pay down when times are robust. Excess cash on hand would be used to either pay down debt, or be transferred to ownership, we haven’t historically kept a rainy day fund in cash or securities.
My employer is a privately held company and supposedly it has some sort of reserves enabling it to not only take advantage of an opportunity but also weather a bad quarter or so. But being privately held this information is not open to the public so there’s no way to really know unless you’re in the part of the company that keeps track of that sort of thing.
Most people’s “rainy day” funds are really just savings. All of which is eventually meant to support them in retirement. Yes, they might keep some of that in a more immediately accessible format for quick access, but ultimately, if it doesn’t “rain” the money is simply more retirement savings.
Companies don’t retire.
Companies generally don’t have the luxury of sitting on cash. It’s far more efficient to set up stand-by lines of credit and use any excess cash to either expand the business or give to the owners as profits or dividends. Yes, that makes them somewhat more brittle in a downturn.
But for most businesses in most industries in most circumstances, they don’t have the “I just lost my job and my income went to zero” problem. Instead they have the “Total revenue is down and so profits are down more, so we need to reduce expenses, not just keep spending like nothing has changed.”
It’s essentially impossible for a business to sock away enough cash to survive a total cessation of revenue for more than a few days or weeks at most. Kinda like hummingbirds, they’ll starve to death very quickly once deprived of all food / revenue Hence the support to (supposedly small) businesses at the outset of COVID. Letting all those businesses die would really have complicated the economic recovery later.
The nonprofit hospital system I work for regularly reports how many operating days of cash on hand they have. Currently it’s 207.
It briefly went negative a few years ago when Medicare held up payments for several months for some reason.
Some large, mostly technology companies, hold a lot of cash but not specifically as a “rainy-day fund”. It’s a year old, but read this article for examples. Apple, for one, held at the time about $200 billion, Alphabet (Google) held about $170 billion, and so forth. I’m a (very small) shareholder of Berkshire Hathaway and it regularly had $50 billion or more in cash. The CEO Warren Buffett regularly talks about the difficulty of finding places to invest the money.
I also have to question the initial premise of the OP
How Much Should You Have in Savings? Suze Orman Says Most Can't Cover Emergency - Bloomberg.
That’s probably the real answer. Most companies won’t actually keep cash on hand, if they have access to relatively cheap and fast credit.
It’s kind of like having a $20k limit on a credit card, or keeping $20k around in cash. One is there if you need it, while the other requires you to accumulate it, and then keep it around, not using it for whatever alternative uses you might have.
They also do stuff like put it in short term investments that they can get money out of without much penalty. Think savings account, for the personal finance equivalent. You might pay a fee if you draw it down too much, but that’s better than being broke.
Having money sitting around as cash is basically the same thing as not having it at all; there’s something that money could be doing- being invested somewhere, being used to buy stuff for the company, etc… instead of just sitting around as cash, slowly losing value over time.
Not to hijack, but how much of that is income, and how much is poor financial planniing/education/lack of good sense? I mean, I know some people who probably can’t cover an unexpected $400 expense, but it’s not because they’re underpaid, it’s because they’re abject dipshits who basically live at or above their means, and don’t have $400 laying around as a result.
I have a standing $20k line of credit, and it’s easy enough to get a loan for more if I need it. Of course, the best way to qualify for credit is to not need it.
But, I’d rather occasionally dip a couple thousand into my credit line to cover payroll than to always make sure that I have cash on hand to cover payroll.
As long as my revenue is generally greater than my expenses, it makes more sense to cover dips by borrowing than by having enough on hand to cover any contingency.
Of course, that’s where companies can get into trouble if that credit dries up. In 2008, many companies like mine suddenly couldn’t access their lines of credit to cover payroll, vendors, or other expenses. That had nothing to do with the viability of the company itself, and all to do with uncontrollable external factors.
Yes to both. But further analysis would be outside the scope of this thread. My point was only that the premise of the OP, that households were somehow more responsible than businesses at saving up a rainy day fund was questionable.
If we’re discussing the behavior of generally well-managed generally profitable businesses, ISTM it’s reasonable to limit our comparisons to households that are generally well-managed and generally profitable. IOW not folks who’re hand-to-mouth no matter how large their W2 is or isn’t.
Granted that per @k9bfriender’s cite that filters out one hell of a lot of US households.
One of the problems with easy credit is that it allows companies that are not well-managed or profitable to stay in business when they shouldn’t. They are digging themselves into a hole, but the shovels are free and the dirt is cheap.
When credit freezes up, some well managed companies may feel a pinch, but be able to recover. Some less well managed companies will go out of business. And the worst managed companies will refuse to go out of business and drag their employees, vendors and creditors through hell.
A mix, but I expect more of it is behavioral than most want to admit.
I made just under $30k last year but I have no debt and I can handle ten times a $400 expense without needing to borrow a dime. Yet I know people with ten times my income up to their eyeballs in debt and living paycheck to paycheck.
Of course, external factors and luck can also play a role - something else Americans are loathe to admit to - but a big problem is people living beyond their means and taking on debt. Not all debt is bad, but sometimes even a debt that makes sense - buying a house, getting an education - can wind up a problem if initial circumstances change or disaster hits.
@k9bfriender two posts above…
Yup. Agree completely.
And the same easy credit represents the same trap to ill-managed households.
Back in 2008 I was doing mighty fine in the boom leading up to the big crunch. I was fully invested, had negligble assests as cash, and had unused credit cards and a HELOC equal to about 2 years’ W2 as a cushion were I to have a “rainy day”.
Then the financial shit hit the fan. My income never faltered, my credit score stayed perfect, but a large fraction of my unused credit was summarily cancelled on short notice. Ouch!!
Fortunately I avoided having a “rainy day” wherein I’d have needed to sell depressed assets to eat. The costless cushion I thought I had turned out to be a mirage once under stress.
So I now carry some months’ cash as liquid savings for that eventuality.
As @Broomstick points out, its possible to have meaningful savings at the lower reaches of the SES, but it isn’t easy and it requires an intelligent, responsible state of mind to achieve.
Which she has in spades, but that are often kinda rare down among the perpetually job- and money-insecure.
I don’t know about *more responsible", it’s just that businesses have more options open to them than households do in terms of short-term lines of credit, and businesses almost always have someone whose job is to manage all that stuff on a daily, weekly, monthly, and yearly basis, and that person is usually educated in financial concepts. So they’re unlikely to be loosey-goosey with their balances, cash flows, etc… unlike your average householder.
So as a general societal rule of thumb, it’s probably not a terrible idea to say something like “you should save six months of expenses”, when in reality, it’s more like “you should be able to cover six months of expenses.” Above a certain income level, that becomes serious money that is better invested than just sitting in a savings account. Maybe for a household making $150k a year, it’s 1-2 months on hand in cash, another 2-3 in short-term investments, and several months worth of open credit card limit.
Heh, that’s optimistic. I take it you haven’t met many small business owners?
And be able to tighten one’s belt in order to last those six months.
Publicly traded companies report cash and cash equivalents. You may wish to subtract liabilities. I’m not aware of any real-time lists or recent analyses that summarize, but searches along the lines of
companies that hold lots of cash
satisfy the OP’s “are there any” question with plenty of examples, albeit some outdated.