So you’ve got some extra cash in your business bank account and you’re wondering what you should do with it? First of all, congratulations! You’re in the enviable position of literally having more cash than you know what to do with! It’s a great problem to have, but being the entrepreneurial spirit that you are, you know there is always a way to make your money go further. After all, who wants inflation and rising costs in the market to eat into their savings? The longer you hold cash in an environment of rising costs, the more purchasing power you lose.
Let’s look at 5 options you have ranging from very conservative to very aggressive strategies. Depending on your risk appetite and what you want to accomplish, you should be able to pick at least one of these to reach your goals.
Money Market or Savings Account
This is definitely the most conservative option, but if you’re looking for safety this is the way to go. A lot of people like to have a cash cushion as protection against a market downturn, and regardless of your feelings about which way things will go, it’s always safe to have at least some cash on hand. Most checking accounts pay next to nothing in interest, but moving idle cash to a savings account or a money market account with your bank is a superior option. A money market account pays higher interest, allows you to write checks, and is protected by the FDIC for up to $250,000.
Invest in More Inventory or Head Count
Are you expecting more sales growth over the next several months or years? Use that cash to increase your inventory to meet customer demand or hire more staff or contractors if you run a service-based business. One of the worst things a business can experience is a stock-out of inventory or the inability to provide service to a new client or customer. Lost sales are just as bad as spending too much on the wrong things, and being prepared for new demand will increase your credibility with customers and grow your bottom line.
Buy an Index or Mutual Fund
Index and mutual funds are the easiest way to get exposure to the stock market, and they provide consistent returns over the long run at relatively low risk. By buying a fund, you are basically buying into several stocks all at once thereby diversifying your risk. If one stock in the fund goes down, others that are rising offset the losses. Obviously, some days you will be down and up others, but in the log run investing in these can easily provide 7 to 10% returns in a year. The only difference is that mutual funds are actively managed by someone picking the stocks and require a fee while index funds take a sample of all stocks. A mutual fund may outperform an index fund, but the fees it requires may eat into the extra profits. At the end of the day, both provide similar returns.
Marketing and Advertising
Want a more hands on method that directly impacts your business? Put some of that cash to work on getting more brand exposure! If your sales are flat or even beginning to dip slightly, investing in a new marketing or advertising campaign could be just the shot in the arm your business needs to bring in more revenue. Most of the other methods in this list involve growth potential that is outside your control, but when you focus your cash on bringing more attention to what you can offer, it gives you the opportunity to put your best foot forward and pitch your value in whatever way is needed for your ideal customers.
This is a personal favorite of mine as I love searching for overlooked opportunities in the market, but it is definitely not without risk. If you don’t know what you’re doing, you can lose a lot of money, and even if you do invest in an outstanding company, it may be a while before the market recognizes its true value and brings it up to new heights. Entire books have been written on how to pick stocks and it’s not generally advisable to try this out without understanding at least a bit of basic finance and how markets work. But if you know what you’re doing, putting your extra cash on a winning stock can be extremely rewarding. The sky is the limit and fortunes have been made with this approach.
Whether you want to invest more in your own business or somewhere else, putting idle cash to work is usually a good idea. There is always some risk, but on the other hand, cash loses value over time as inflation inevitably rises. In the long run you owe it to yourself to make sure all the hard work you put into your savings isn’t lost to the increasing cost of living. Investing in new opportunities is a great way to help both yourself and the overall economy and when you look back at your past decisions, it’s a wonderful feeling to be able to say your choices paid off.
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