When you are captain of your own ship, the critical decisions rest with you and this includes how you use excess cash. There are numerous courses you could navigate, but generally it comes down to three: Reinvest in the business or buy some income generating assets; Reward yourself by splurging on something special; or Do nothing.
Okay, so let’s set the scene.
You’ve worked hard generating new business, you’ve kept a close eye on your operating costs, you’ve got the right people for the job and your outstanding customer service has resulted in committed customers returning again and again to buy from you. Your cashflow is good and there’s excess money in the bank.
In my experience, business owners are both excited by and a bit stumped by what to do with excess cash.
Some can’t wait to get their hands on it and splurge on a new Porsche or a Rolex, while others who may have lingering memories of doing it tough and a fear of adversity ahead, will begrudgingly leave it in the bank, just in case something happens.
The key to making the most of your excess cash is to understand your options and do something with it.
For most business owners their first consideration is: ‘How much of the excess can I extract from the business without causing harm?’
You will only know the answer if you have a firm grip on your numbers, and that will be dependent on a couple of key elements.
Firstly, you’ll need a decent accounting system. One that has been tailored to provide management reports that are meaningful for you and your business.
Secondly, the financial data that is keyed into your accounting system needs to be up to date and accurate.
The financial management reports generated by your accounting system, together with intel provided by effective tax planning (that provides an advance indication of your tax obligation) along with your business plan’s short and long-term growth and asset management, you’ll have the confidence to make decisions about how to use your excess cash.
It may mean that your new Porsche becomes a reality but if that’s a stretch too far, you can always settle for a slightly older model that will still provide a very satisfying reward for effort.
Similarly, you’ll feel confident to put your excess cash to work rather than leaving it to stagnate in the bank, or worse waste away in bank fees, taxes or those unnecessary miscellaneous and non value adding expenses that can erode your bank balance.
If you’d rather reward yourself in the longer term then purchase income producing and appreciating assets. You can potentially enjoy investment growth that can directly contribute to your personal prosperity and a happy, financially stress-free retirement.
The point is, with accurate financial information and sound advice you can be proactive with your excess cash. Whether you buy a Porsche to enjoy the reward now or invest it to enjoy the reward in future, you can do it knowing you’re making excess cash decisions that are right for you.
If you’ve found this article worthwhile and you’d like to understand your options for making the most of your excess cash, here’s what you should do next.
-Review your management accounts to be certain of your excess cash balance.
-Consider what excess cash could mean for you, how would you spend it and what would make you happy – a Porsche parked in the driveway, an opportunity to retire in style, achieving a philanthropic goal or something else?
If I can help you to make confident decisions around your excess cash position, please contact me on +61 2 9699 9171 or email email@example.com
This information (including taxation) is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Make Cents Accounting strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.