Friday’s two bank failures should be a wake-up call for most businesses to evaluate the amount of money they deposit in one account at a bank. The maximum insured deposit under the FDIC is $250,000, which is the equivalent of one month’s worth of cash for a business that has annual revenue of $3,000,000, or two weeks of cash for a business of with $6,000,000 annual revenue.
As the treasurer of a local non-profit with annual revenues of $12,000,000, looking at the account balances within our primary bank became an important topic at our Finance Committee meeting on Tuesday. Since the weekly expenses are over $230,000 per week, it creates a challenge of managing cash flow within the primary checking account while minimizing the risk of exceeding the FDIC limit of $250,000.
To assist me in my role as treasurer, I asked CHAT GPT, the artificial intelligence released last November, for advice. See my question and the response as follows.
Question: If a business has a bi-weekly payroll of $1,000,000 which is paid out every other Friday. How much of the $1,000,000 needed to meet payroll is covered by the FDIC?
CHAT GPT Response; The FDIC (Federal Deposit Insurance Corporation) provides insurance coverage for deposits in case a bank fails. However, it does not cover the full amount of a business’s payroll expenses.
To determine the amount of FDIC coverage for a business’s payroll deposits, we need to consider the maximum insurance limit per depositor and per ownership category, which is currently $250,000 per depositor, per ownership category, per bank.
Assuming the business deposits its payroll funds into a single account at a bank, the maximum FDIC coverage for this account would be $250,000. Therefore, the amount of the $1,000,000 bi-weekly payroll that would be covered by the FDIC is $250,000. The remaining $750,000 would not be covered by the FDIC.
It’s important to note that businesses can increase their FDIC coverage by using multiple banks and/or by using different ownership categories for their deposits, such as individual accounts, joint accounts, and business accounts. However, this may require additional administrative work and may result in higher banking fees.
Now for the reality of managing risk and managing operating cash needs. Last Friday’s bank failures were a reminder of the importance of doing the basic “blocking and tackling” of finance and risk management.
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It is getting down to the last minute and I still haven’t filled out an ESPN NCAA men’s basketball bracket. I have until noon on Thursday to make it happen. I am not sure I have my head and heart into it this year.
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Tomorrow or Friday, I will be sharing excerpts from an article in The Guardian which shows how youth sports are out of control while adults are profiting on the backs of the youth who participate and the parents who pay for the services. This article is about youth hockey, but I could change the name to soccer, basketball, baseball, softball, lacrosse, volleyball or any other sport and the story would be the same. See my Quote of the Day.
Feel free to share my blog or to sign up to receive it directly in your email. See the sign-up at the bottom of the blog below the video.
Quote of the Day: “Again, this big money is being generated by children. It’s this departure from play, and fun, to the centering of money as object, that transforms children into laborers. Once youth sport becomes more than play, it is an activity with an enormous capacity to generate benefits for stakeholders far beyond what is necessary to simply benefit the child participating. This doesn’t make youth sport is bad or wrong, but it does warrant closer examination of who primarily benefits from the ways in which youth sport is organized and administered, because children in such a system can easily transition from players to laborers.” Dionne Koller, professor of law and director of the Center for Sport and the Law at the University of Baltimore
Orchid of the Day: My granddaughter Kaylen, who received a special note from her kindergarten teacher for the way Kaylen interacts with and has befriended one of the students in her class with special needs.
Onion of the Day: Michigan weather in March. It has been two weeks since I left Gulf Shores and I am very tired of the snow and cold weather.
Question of the Day: Do you know the financial condition of the bank/credit union that you deposit your money?
Video of the Day:
The plate umpire in the following video was suspended for his behavior and incompetence. An NCAA official should know that getting even is not appropriate behavior.
https://www.si.com/extra-mustard/2023/03/11/college-baseball-umpire-suspended-strikeout-call
Hey Tom, skiing been great, think, when the world gives you lemons, you make lemonade. Snow and cold? I’m enjoying not having to cope with my awful golf game. Jeff
I am looking forward to getting you on the golf course. I am glad you are enjoying the skiing. We are putting our house in Ypsilanti on the market on March 31. Hopefully it will sell quickly and we can finally live full time in Petoskey.