For most businesses, it’s feast or famine. You’re either flush with cash, or you’re counting every penny to make sure you’re in the black.
Cash flow management is the one skill that business owners have to have. Do you know the number one reason why businesses close? The lack of cash flow.
Managing money in both the good times and the bad will ensure your business’ long term success. That means that you have to learn about growing money in a way that’s sustainable.
How can you be smart with your money and manage it well? Here’s what you can do with that excess cash.
1. Invest in Growth Strategies
What does growing money usually involve? Smart investments. In the case of your business, investing in growth strategies makes sense.
The question becomes, which growth strategies make the most sense for you? You’ll want to sit down with an investment specialist who can assess where you are now and where you want your business to be.
They’ll then develop smart growth strategies to help your money grow.
2. Set Up Cash Reserves
Your small business has cash on hand that you can spend, which is a sign of great money management.
When you look at a company’s quarterly or annual reports, there’s one thing that will indicate the overall health of a company. That’s cash on hand. The more cash on hand a company has, the more flexibility they have to manage slumps in sales.
You can start to think like those large organizations and use your excess cash to open up a cash reserves account. A savings account or a money market account would be able to help you accomplish this.
You can think of your cash reserves as a “rainy-day fund”.
3. Acquire Another Business
Business acquisition is an interesting strategy to expand your business if you have a lot of cash on hand. It isn’t the right decision for some small businesses.
However, if you want to consolidate the market in your area, increase your market share, or expand your services, this could work for you.
Before you run out and buy a business, you want to make sure that you are buying a business that will help you reach your long-term business goals. It’s a long process to acquire a new business, and you’ll need to do your due diligence to ensure that you’re making a smart decision.
4. Invest in Your Staff & Equipment
Is your business in growth mode? Perhaps you’re ready to scale up your business. One way to do that is to invest in your staff. You may hire more employees to sell your products and services.
You may also invest in equipment and employees that will allow you to handle more orders and production.
Another way of growing money is to invest in marketing strategies that will bring more clients in the door. You can combine all three to bring more clients in the door and make sure that you have the staff and equipment on hand to maintain a high level of service.
5. Pay Down Debts
Do you know how much interest you’re paying on your debts each month? If your business has a lot of debt with high interest, you may want to direct your excess cash to pay down those debts.
You can add a little more to your monthly payments to pay down the debt faster while setting aside some of the excess cash for growing your business.
How to Decide the Best Strategy for Your Business
As you can see, there are plenty of ways to grow money in your business. How can you decide what the best plan is for growing your money? Here are a few tips to help you make the decision.
Assess Your Business Goals
The best place to start is to assess your vision and long term goals for your business. You want to make sure that the decisions you make are aligned with the rest of your business.
For example, it wouldn’t make sense to invest your money by acquiring a new company if you don’t want to expand your business.
Look at Your Financial Statements
How often do you look at the financial statements of your business? For some business owners, they glance at them every day. Others may avoid them altogether.
Before you make a major financial decision for your business, you want to make sure that you know the financial direction of your business. Take a look at the income statement, balance sheet, and cash flow statements over the last 6-12 months.
You’ll be able to identify recent trends in your business such as seasonal patterns. This will help guide you in making a smart financial decision for your business.
Get Outside Advice
One of the best things you can do to help you make a smart financial decision is to seek outside advice. You can be so deep in the day-to-day operations you can’t see the long term strategies in your business.
You also can’t see your blind spots. Plus, the topic of money can be emotional for a lot of people, especially business owners.
An outside perspective will help you take an objective view of your business, your financial picture, and guide you to make the best decision for your business and financial future.
Growing Money for Long Term Success
There’s one big difference between successful and unsuccessful businesses: cash flow. Many businesses operate in a way where they’re either flush with cash or they’re struggling to make ends meet.
When you invest your excess cash wisely during the boom periods of business, you’re setting yourself up for long term success. There are many things you can do with excess cash from investing it back into the business to opening up cash reserves accounts.
Growing money isn’t easy. It requires you take a step back, assess your business vision and goals, and make decisions accordingly.
Would you like some insights as to how you can manage your cash? Contact us today.