investing your business’s excess cash depends on your current needs and future goals
When your business starts to generate significant amounts of extra cash, the temptation is often to pay yourself a big bonus or go on that cruise you’ve been promising yourself. However, this is the perfect time to plan for your company’s future and consider where you want to take it.
Before spending your excess money, ask yourself these questions:
- Will your business need any of the money in the next six to twelve months?
- Are you looking to grow or diversify?
- Do your personal finances need a boost?
- Do you want to make more money? Then, draw up some accurate projections of your daily and emergency cash needs for next year. Once you know if you are going to need some, all or none of it, you’ll be in a better position to know how to invest your extra cash.
Here are a number of ideas for investing your excess money that will benefit your company.
Pay down debt
If your debt is cheap money, your extra cash may be better spent elsewhere. If there’s a solid way to invest your cash and bring you a higher return than your debt’s interest rate, don’t pay it off.
However, if your debt is bleeding you with high rates, use your excess money to pay it off. This will grow your profits even faster and lead to more investment opportunities.
Invest in yourself
If you’ve been too busy building your business to watch over your personal financial wellbeing, now’s the time to do it. Putting some excess cash into an RRSP is a good way to kick start your pension plan and it will also help reduce your tax bill.
Improve a key product or develop a new one
Invest in some solid R&D to improve your current top selling product or develop a new product that will get your customers excited. You’ve probably got a bunch of ideas for products your customers will snap up - use your excess cash to develop them and get them to market.
Invest in your marketing efforts
When it’s done well, marketing delivers an excellent return on investment. Consider hiring a marketing manager or an ad agency. Look into marketing channels you haven’t yet explored. Do your research, do it well and you can expect sales to grow significantly.
Buying a building or land will not only reduce the amount you have to pay on rent, it will also give you more control over your expenses. Buying key equipment instead of leasing it can also bring huge savings. It will also help maximize your tax deductions while growing your profits.
Invest in your staff
As your business grows, your reliance on good people becomes greater. Managing to keep hold of good employees will save you time, money and stress. Pay them performance-related bonuses, provide training that will benefit them and your company and organize fun events that will make them feel truly valued.
Having significant amounts of cash can be helpful when buying up inventory. Approach several suppliers and waive the incentive of up-front cash payment to secure big discounts. Even if you manage to negotiate a discount of only 5 or 10%, this still represents a good, quick return on your cash.
Look into expansion
High import tariffs or shipping expenses could mean that opening an overseas subsidiary will bring you greater profits. Or if you have a lot of clients on the other side of the country, it might make sense to open a branch near them. Now is the perfect time to investigate these options.
Buy a business
If you buy a related company, like one of your distributors or suppliers, you immediately reap the benefits. You either get supplies for considerably less money, or sell your products at a higher profit.
If you buy a completely unrelated company, this will give you the opportunity to diversify and lower the risk of being in just one niche.
Invest your money to make money
Whether you expect to need your money at some point in the next year, or if you can let it grow indefinitely, there is a host of options open to you. Short-term deposits like GICs can bring you a much better return than your bank account, while still giving you access to your cash.
If you are looking at locking your money up for a longer term, there are options that can bring very healthy gains.
Mutual funds, ETFs and stocks bring returns that tend to increase in potential growth with the increase in risk. If you’re looking for considerable growth, over a long period of time, these could be your best option.
Your First Calgary team can help you to:
Get the best returns on your excess cash
Save money with tax-efficient investments
Choose the investment that’s right for you from a wide range of options
If you want to be hands-on with your investments, we can give you access to Canada’s leading independent online brokerage, Qtrade Investor.
We’ll help you invest your excess cash and get it workinG Hard.
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