When your business has a great month and leaves you with surplus cash, your mind might feel pulled in a lot of different directions. What should you do with the money? Should you reinvest it? How? Maybe you should just leave it in a savings account and save it for a rainy day.
If you’re wondering what to do with surplus cash, consider these smart ideas that will put your money to work for you and get you the best return on your investment.
Invest in innovation
Assuming innovation forms part of your growth strategy, knowing how much you can invest in innovation is a key element to being able to deliver on your goals. When you have surplus cash, you can invest in new, innovative ways to grow your company. Innovation can take many forms, whilst people often think of the tech and startup up space when this word is brought up it has a very practical meeting in service businesses. It can include:
- Research into new service lines or service delivery models
- Upgrade your business systems
- Automating your marketing and sales functions
- Investing in middle management to take you away from the day to day operations of the business.
These are fairly safe options that puts your money to good use and prepares you for the future. As trends change, so too will your business and you’ll be better able to keep up with the next big thing in your industry.
Leave it in a savings account
Though not exactly the most exciting option, you can stick your excess cash in a savings account and not touch it. This will give you sound peace of mind, knowing that if you suddenly need to replace equipment or pay for a repair you could do it without breaking the bank. Some business owners would rather have the peace than anything else.
Savings accounts usually earn very little interest, often less than one percent, but you can leave your money there to make it easier to access on a whim. Savings accounts with high interest rates can help you grow your money over the course of a few months. If you’re planning on holding onto your money for a long period of time, this option will gradually grow your money.
For those who are planning to stash their surplus money away and not touch it for an extended period of time, you can also put your surplus cash into a term deposit. These accounts have a higher interest rate than most savings accounts, but the accounts are technically locked for a certain amount of time - as little as 30 days to as long as five years - and there’s usually a fee for accessing the account before the maturity date.
Still, this is a great option if you want to make some easy money off your surplus cash at a faster rate than a regular savings account. If you know you won’t need your cash, a term deposit is a great investment option, but savings accounts work just as well.
Purchase other businesses
Let’s say you own an IT business. You have a fairly large presence in your community and your staff have specialised in key areas, but you would like to expand your reach to another region as well as your skill set. Starting another company comes with enormous start-up costs. Instead of building a new business from the ground up, you could approach other business owners and see if they are willing to sell off their companies.
Buying out other companies comes with quite a few benefits. For one, you usually don’t have to drum up new interest in your business and start building a new client list. Most clients will still come to the same business, even if it is under different management. You also don’t have to purchase new equipment or hire a completely new staff.
If you can buy out several businesses in the surrounding areas, then you’ll have even more business opportunities and see your business grow to even greater heights.
Take the money and run
Having a lot of money in a business account usually means you are doing something right. And if we are all honest, we are in business to better our lives through wealth creation, for our families and sometimes our communities.
Rather than leave your money in your business account, you can take the money out, loan it to yourself, provide bonuses to employees or issue dividends, if possible, with employees or shareholders.
Part of what motivates some entrepreneurs is the drive to make more money and succeed. When they have extra cash, they want to put the money out of sight and out of mind so they don’t lose that hunger and motivation. Taking the money out of a business account will help you separate it and leave you just as determined to succeed as before
Issuing dividends is more common for shareholders, but if you have a very small business run with a few very hardworking people, you might give out your money as part of a bonus for doing a great job. This is an awesome way to boost morale around your company and make your employees proud to work for you. They may be more inclined to work harder and stay with your company for years to come.
All of these are great options that could benefit your company in a number of ways, but to really know what’s best for your company, it’s important to speak with a financial expert to help you see what your best option may be. A CFO can give you the right advice for your business to help you grow. If you are unsure what a CFO is or what the benefits of a CFO are, then read through these articles and learn how a CFO can fix your cash flow issues and help to grow your business.