Cash may be an important security blanket for U.S. businesses in the wake of the recession, but one in four CPAs in senior finance positions say that they expect their companies to reduce corporate cash holdings over the next 12 months, according to the recent Economic Outlook Survey by the AICPA.

While a majority (60 percent) of survey takers said they plan to keep their cash holdings unchanged over that period, five percent said they planned to reduce their cash position significantly. Another 10 percent said they planned to reduce their holdings moderately, while 11 percent said they planned to scale them back. In comparison, 15 percent of respondents said they planned to add to their cash holdings over the next year.

Respondents who indicated they would reduce cash holdings were asked what their companies planned to do with the money, with the following top choices (more than one category could be selected):

  • 45 percent said they will invest in capital projects
  • A quarter said they expect to earmark a dividend or other equity distributions to shareholders
  • Eighteen percent said they will use cash to help fund acquisitions or other business transactions
  • Seventeen percent said they planned to reduce debt, while a similar percentage said they planned to fund business expansion or hiring.

Most business executives said their companies are not planning on shifting their allocation of cash due to regulatory changes next year that may make it harder to put cash in institutional money-market funds as a short-term tactic to ensure liquidity. The Securities and Exchange Commission, as part of reforms to prevent runs on money funds during a financial crisis, is requiring many prime institutional funds to shift from share values that are fixed at a traditional $1 to shares that float in value. Corporate money managers see the buck-a-share value as a useful hedge to protect short-term investments, but the funds would be far less attractive if values were updated daily. 
Some 63 percent of survey respondents said they are not reallocating cash yet in advance of the SEC-mandated changes, and another 30 percent said they are not sure of their plans. A small percentage said they are looking into short-term bond funding (3.9 percent) or government funds (3.3 percent) as alternatives to institutional money-market funds.

For the full Economic Outlook Survey, head to the AICPA's site here.