Too much cash is a great problem to have, but how much is too much and what do you do with it? First, you need to determine how much cash you need to keep your business safely running. The general rule is enough to cover at least two months of overhead.
You can also open a line of credit at your bank as an added safety net. If you’re still in a cash-positive position after that, there are plenty of options for how to best use the money. Sure, saving is always smart, but you can be a bit more creative and adventurous too.
1. Save it for a rainy day.
The safest and easiest option is to put excess cash in a savings or money market account. Even though it’s unlikely to earn much, you won’t have to worry about it and can take comfort just knowing the cash is there.
2. Give yourself a raise or a loan.
You’ve worked hard for that extra cash, so another option is treating yourself. You could raise your own salary, pay yourself dividends or give yourself a loan. You may want to talk to your accountant about mixing personal and business funds, but it’s still your money at the end of the day.
3. Share the wealth.
If you’ve been working hard to make your business successful, then your employees have too. Consider rewarding them — and inspiring loyalty — with a cash bonus or contribution to their 401(k) plans. Bonuses can be given at the end of the year and be commensurate with the business’s amount of extra reserves.
4. Buy another business.
This option is a bit riskier, but consider the impact of purchasing one of your suppliers, distributors or competitors. Could it save you money in the long run and help diversify or solidify your business in the market?
5. Invest in marketing.
Not all businesses take time and money to promote themselves. Consider doing an advertorial in a newspaper, taking out a billboard, sponsoring a local event, doing some online advertising or even hiring an extra salesperson. There’s nothing wrong with celebrating your success.
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