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Case study

Operating cash reserve policy

Tiered cash for family trust distributions and operating company working capital.

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Operating cash reserve policy — illustrative photograph

Situation

A family group mixed investment assets with operating company cash needs. Distributions were sometimes delayed because investment portfolios lacked a defined liquidity tier, while excess cash sat idle in low-yield accounts outside the IPS.

Three-tier water fountain
Distribution calendar

Policy design

We created three tiers: Tier A operating (90 days company expenses), Tier B distribution reserve (known trust commitments 12 months forward), Tier C strategic cash within the investment portfolio for opportunistic rebalancing only. Movement between tiers required dual approval and was logged in quarterly reports.

Implementation issues

  • Commingled accounts blurred tier accounting.
  • No calendar linking ATO instalments to Tier A sizing.
  • Investment committee meetings conflated business and personal risk.

Outcome

Distributions met schedule through a full financial year. Idle cash fell while Tier A never breached minimum. Investment IPS explicitly excluded Tier A/B balances from growth allocation targets.

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Questions about this cash reserve policy

What are Tier A and Tier B?
Tier A covers non-negotiable distributions and working capital minima; Tier B holds strategic reserves excluded from growth targets.
Why exclude tiers from growth allocation?
Otherwise idle cash is silently treated as equity risk budget, overstating investable growth assets.
How are distributions scheduled?
Calendar aligned to trust deeds and company cash cycles—not generic platform defaults.
What if Tier A breaches minimum?
IPS escalation and documented exceptions, as in the case outcome over a full financial year.