Are you carrying a high balance in your business checking account? Your small business might be holding on to cash due to receiving a shareholder investment, closing a large sale, saving up for an equipment purchase or acquiring a small business loan or grant.
The best use of your cash will depend on your situation, but it’s generally best to use your investment funds wisely by focusing on growth, tracking results and sticking to what works for your business. Wise investment or spending for growth generally leads to sustainable success. Here are a multitude of smart strategies to handle your excess business cash.
1. Earn a return
Sometimes it’s a good idea to keep extra cash on hand. Every business needs some capital in reserve to cover costs when business is slow. You may also want to hold on to extra cash for future goals, like investing in a piece of equipment or buying out a competitor.
In that case, the best way to handle your cash is to hold it in traditional investments.
Depending on your business structure, you may have the option of buying stocks or bonds. On the downside, this kind of investment can be risky, and managing investments requires specialized knowledge and could take time away from running your business. FDIC-insured interest-bearing accounts are a much simpler and more secure investment — but the stock market has historically offered much higher returns over time.
If you’re an experienced investor and you feel comfortable putting your business funds into stocks and bonds, you can open an account in your business name with most brokerage firms.
If you want to keep your capital safe and continue to put your energy into your business activities, move some of your funds to an interest-bearing business savings account, money market or certificate of deposit (CD). These options offer a guaranteed return without the risk of losing any of your capital.
2. Repay debt
If you’ve used credit cards or lines of credit to finance your business, this is a good time to eliminate or pay down that debt. A small amount of debt can be a good thing, as it can help your business build credit. But reducing your monthly payments can boost your cash flow, and the interest you might earn on a bank account typically won’t come close to what you might save by paying off debt.
Business lines of credit tend to average around 8 percent interest, while business credit cards might cost you 17 to 26 percent. That’s a guaranteed return at a rate that’s virtually impossible to achieve through savings or investments.
3. Hire people who can grow your business
Another way to use your investment dollars is to bring in talent that can help skyrocket your business growth. Whether it’s a seasoned CFO to manage finances or a savvy marketer to build your brand, the right hires are worth every penny.
You might also consider investing in your current team by offering training, leadership opportunities or benefits that motivate them to stay with you and do a great job. A happy, well-supported team will go above and beyond for your business.
The downside to this strategy is that you are committing to an increased payroll expense that might outlast your current cash reserve. One way to mitigate that is by hiring consultants or contractors for a limited time to help you achieve specific milestones. For example, you might bring in a marketing consultant to create a new strategy, a graphic designer to revitalize your brand or an efficiency expert to help you improve your profit margin.
4. Upgrade your tech infrastructure
If you still rely on clunky spreadsheets or outdated tools, you’re needlessly hampering your business. The right technological investments can save you time, money and a whole lot of stress. Consider using your investment funds for:
- Automation software: Automation platforms like Zapier and HubSpot can help you handle repetitive tasks such as sending follow-up emails and updating customer records
- Customer relationship management (CRM) platforms: CRM tools such as Salesforce, Zoho CRM and Pipedrive can help users manage sales records, track customer interaction histories and better handle clients over every stage of the sales process.
- Analytic tools: Paid analytic platforms like SEMrush, Moz and Ahrefs offer actionable insights that go much deeper than free tools like Google Analytics. These apps help you gain insights into customer behavior, market trends, business performance and more.
- Upgraded hardware: Computer equipment and phone technology are constantly evolving. Faster computers, better videoconferencing equipment and up-to-date cell phones will help your staff work faster and more efficiently. Newer equipment and operating systems might offer better data security, as well.
5. Bolster your existing customer relationships
Your very best pool of potential customers is the people who have already bought from you in the past. That’s why customer retention is the cornerstone of any successful small business, and using your capital to engage your existing customers is a wise strategy.
Some ideas include:
- Launching a loyalty program that gives customers discounts, free items and other perks.
- Upgrading your customer support system to include live chat, text messaging and other convenient channels your customers use every day.
6. Reinvest in what’s already working
One of the easiest ways to handle investment cash is to double down on what’s already bringing in results. Whether it’s a marketing campaign driving sales or a product that’s performing exceptionally well, reinvesting in proven strategies can amplify your success. In many cases, sticking with what works is your smartest move.
Don’t make the common mistake of expanding a pet project without checking to be sure it’s profitable first. If you don’t already know which of your business activities and customers are generating the most profit, ask your accountant to help you analyze your data.
7. Plan for tax obligations
Don’t forget that investment funds may come with tax implications. Work with a tax professional to understand how the funds impact your business’s tax liability and set aside enough to cover what you owe.
Consider using a portion of the funds to optimize your tax strategy. For instance, you could take advantage of deductions for equipment purchases or research and development expenses.
Staying ahead of your tax responsibilities helps to keep you compliant and protects your cash flow and credibility with investors.
8. Strengthen your brand
If you’re planning to raise more funds in the future, it’s helpful to start laying the groundwork as soon as possible. In order to set yourself up for success in the future, it can be helpful to set the following goals for yourself:
- Increasing revenue by a specific percentage or profitability
- Expanding your market share
- Building a stronger pitch deck with updated metrics
By showing you’ve managed your current funds well, you make attracting future investment easier.
9. Buy real estate
Real estate is a popular long-term investment strategy for individuals, and it’s just as good a strategy for your business. If you currently rent your space and have enough cash for a down payment, ask your accountant to help you evaluate whether buying the property would be a good investment for your business.
10. Launch an affiliate marketing campaign
One of the best ways to grow your internet sales is to offer financial incentives to popular blogs, websites and social media influencers your target market trusts. You don’t have to administer the program yourself — you can work with established affiliate networks like cj.com, Rakuten and ShareASale. You’ll offer a share of each sale to the referring affiliate, but your sales could skyrocket if you connect with the right people.
11. Revamp your online presence
Web technology is constantly improving, and a website that was state of the art a few years ago could already seem dated and sluggish. If you don’t have an in-house team constantly upgrading your site, hiring a web developer is a great investment. Ask for help with:
- Improving your loading time
- Making your site more phone-friendly
- Optimizing your pages for search engines
- Updating your shopping cart and other interactive features
- Bringing your visuals up to date
If you’re happy with your website, consider investing in your social media. Many small businesses treat social media as an afterthought, with the owner or staff tossing out occasional posts when they remember to do it. If you invest in a social media consultation, expect to come away with:
- An overarching strategy
- Design templates that promote your brand identity
- A posting calendar tailored to your industry and target market
- A bank of content ideas to carry you through a year of posting
Next steps
How can you decide which investment is right for your business? Start by creating a business roadmap if you don’t already have one. You might also seek professional advice from your accountant or a financial advisor. Clarifying your goals and identifying the best path to achieve them could show you exactly where you should invest your excess cash.
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