A Minimum Cash Balance Deserves Covenant Treatment
A treasurer at a private energy company I have worked with used to spend the last day of every month moving small amounts of cash between accounts to keep every one of them barely positive. Nothing was wrong with the business that month. The habit was just older than anyone in the room, and nobody had ever written down the number it was actually protecting. Rosser Newton is my name, and I have sat across the table from a version of that treasurer more times than I can count, in companies that were otherwise well run and carefully managed in every other respect. A bank covenant exists because a lender wrote a number into a document and attached real consequences to crossing it. A minimum cash balance an owner keeps only in his head has none of that architecture. It moves whenever the owner feels good about the quarter. It shrinks the first time somebody needs the money for something that feels urgent enough, and it disappears entirely the moment the person who set it leaves the comp...