Having excess cash to invest is every business owner’s dream. But then comes the question, where do I invest my extra business cash? Having money sit idle is a lost opportunity for gaining returns, but it’s also important to have liquid reserves in case of an emergency or opportunity.
Smart business owners know that cash should always be moving, but there is risk that comes with striving for growth. While each cash flow has different needs and mobility, there are typically several you can look into to get the most out of your excess cash and get ahead of your competitors.
Marketable securities are defined as any unrestricted financial instrument that can be bought or sold on a public stock exchange (marketable equity security) or a public bond exchange (marketable debt security).The return on these types of securities is low, usually 5-6%, due to the fact that marketable securities are highly liquid and are considered safe investments. Since these are investments can quickly be converted into cash, it’s a great option for idle cash that may need to be put to use.
The money market is the trade in short-term debt investments. A business would likely participate at the wholesale level with large-volume trades between institutions and traders as opposed to the retail level with smaller individual trading. The money market is considered to be safe with a low return on interest.
A business may invest in money market funds such as:
- Short-term certificates of deposit (CDs)
- Municipal notes
- U.S. Treasury bills
- Other examples
Buying stocks is a long term commitment and you won’t want to access that cash for awhile. Typically, the higher the risk the higher the reward. If you want high returns, you would look into highly volatile stocks that might show varying peaks and dips. Some investors worry when their investment shows losses, but financial experts advise you stick with it and ride it out for the long run to see greater returns over the years.
High Yield Savings
Another safe investment is to simply put your cash in a high yield savings. Returns won’t top 2.50% and you will likely need a large initial deposit depending on the provider, but it’s a way to earn a return without having inaccessible cash. For those unable to predict when they will need additional working capital, this is a smart way to earn returns without risking losing it.
Buy Another Company
This type of investment is certainly more hands on. Buy buying another company, you are bringing operations in house which may pay off over time one the initial purchase and accrued operating fees are paid off. Examples are buying a marketing company, manufacturing plant, shipping service or other ongoing expense that adds up over the years.
Set Up Retirement Plan
If your company doesn’t offer a 401K plan, you should look into the benefits of it. Offering retirement plans and matching contributions can increase employee retention, attract new hires, and get you a tax discount when filing time comes around.
Invest In Non-Cash Assets
Cash assets like marketable securities are appealing because of their liquidity, which comes in handy when using collateral for a secured loan. If you don’t anticipate needing funding, purchasing equipment or inventory can save you as much money as an investment would have made you in returns. It’s all about calculations and individual business needs.
There are many more ways to get a return on your excess cash, but these are the more popular options. It comes down to how much your business can part with and how likely you are to need that cash.
To read more about how using extra working capital to invest in inventory while the prices are low, read this article on how to survive a tariff war.