TRENDS AND TECHNOLOGY
10 Investments to Make When You Have Better Access to Cash
July 8, 2022 |
The C2FO Team
Cash flow positive and unsure how to allocate the funds? Discover 10 smart ways to invest in the continued growth and success of your business.
As your company grows, you may begin to profit and, as a result, experience periods of cash flow positivity. However, for many business owners, deciding how to allocate those funds can be challenging. You may be tempted to spend excess capital almost as quickly as it arrives or, alternatively, be extraordinarily prudent and spend very little out of fear that your business will experience a slower season or an unexpected expense.
Spending money wisely is critical. That includes thinking about making investments that will ultimately contribute to the continued growth of your business. It’s vital to take a balanced approach when evaluating and choosing investments to set up your business for success. Consider this a useful opportunity to optimize efficiencies, boost stability and enhance operations within your business.
If you’re unsure how to best leverage free cash flow, here are some helpful ideas for how your business can reinvest, save or spend extra cash.
1. Upgrade equipment and infrastructure
Using surplus cash to acquire equipment or improve your infrastructure can position your business for growth. For example, your business might need a new location, point-of-sale system or vehicle to improve operations and increase sales.
Leasing or entering into a lease-to-own agreement can sometimes offer better value than purchasing equipement outright.
With your additional resources, you may be able to invest in the initial down payment on new equipment or even buy the asset outright without obtaining a loan. Alternatively, rather than buying new equipment, you may also have the option of leasing or entering into a lease-to-own agreement for a set period of time, which can offer better value.
2. Conduct marketing
For many companies, driving business growth is one of the biggest challenges.
Marketing and advertising are important for attracting and retaining new and existing customers, thus increasing sales and scaling the business. Moreover, digital marketing and advertising are cost-effective ways to create more exposure for your brand.
For instance, if you run a niche apparel company and have an upcoming sale to clear out last season’s inventory, you might choose to reinvest cash in launching a digital advertising campaign across social and search platforms to build brand awareness, inform potential customers of the sale and increase traffic to your store. InstantFigure is one example of a company that has been able to expand their market presence with more access to working capital.
3. Provide professional development
Reinvest cash in professional development, such as business coaching, workshops, employee training and ongoing learning. Spending your extra resources on these initiatives can be an excellent way to increase operational efficiency, build better customer experiences and make great strides toward achieving goals.
Hiring people with the right skills and experience is one of the smartest investments you can make in the long run.
For example, if you’re noticing negative reviews online about your customer experience, you could invest in a customer service training seminar or certification program for your front-line employees.
4. Hire people with the skills you need
Investing in people — known as human capital — is a necessary expense for any business that wants to establish long-term growth. For example, if you are running an e-commerce business and lack technical expertise, you might find it worthwhile to hire an in-house software developer who has the technical skills to improve the shopping experience and increase sales. Hiring people with the right skills and experience is one of the smartest investments you can make in the long run.
5. Buy stocks and bonds
Reinvesting business profits in stocks and bonds is always an option for cash you don’t need to access in the short term. Index and mutual funds can offer stable returns that exceed what you might make in interest in a savings account.
To secure the right investments for your business, you may find it beneficial to work with a financial advisor. A financial advisor can help you determine a healthy balance between your risk tolerance and potential for growth so you can build an investment portfolio that suits your business best.
6. Acquire another business
Many small and mid-sized businesses fall short of the cash flow needed to acquire another business. But, as your business grows, one great strategy for expansion is to acquire another company’s assets or capabilities to add to your offering.
Therefore, if you’re in a good financial position, you may consider investing in a merger or acquisition. For instance, you might acquire a competitor to achieve greater market share or a business with complementary capabilities to gain an advantage over your competitors.
7. Pay down or refinance debt
If you find yourself with extra cash, you may be inclined to free yourself of some or all of your acquired debt. This can be a great opportunity to improve financial flexibility for your business. However, you should also consider whether or not early repayment or refinancing outstanding debt will provide the best return on investment in the long run.
Paying down debt can be a great opportunity to improve financial flexibility for you business, but consider early payment fees or penalties carefully.
Because business financing options generally include fees or penalties for early repayment, it’s critical to calculate your potential interest savings against any penalties. Be sure to read the terms and conditions thoroughly prior to moving forward.
8. Build a cash flow reserve
While reinvesting in your business is always wise, it's also important to build a cash flow reserve. Do you have enough in your emergency fund to cover your working capital requirements in case of an emergency expense or an unexpected revenue slowdown?
If not, you might use the extra funds you have access to now to build up a cash buffer for future use. The standard advice from financial experts for small to mid-sized business owners is to keep cash reserves equal to three to six months of expenses. That’s a good starting point, but the amount you need will depend on your unique circumstances.
9. Pay yourself
As a business owner, when you’re thinking about your expenses, sometimes paying yourself is one of the easiest things to overlook. If you do not take a regular salary from your business and have excess capital, it may be worthwhile to take an owner’s draw to pay yourself. Simply put, an owner’s draw refers to taking funds out of the business for personal use.
That said, the use of business funds for owners has tax implications and can be complicated, depending on the legal structure of your business. Therefore, it’s advisable to work with a tax expert to ensure you do so in a way that serves your best interests and those of your business.
10. Give back to the community
Using extra cash to invest in your community is an excellent way to give back to those who have helped support your business. This could mean donating to a charity, nonprofit or other organization within your community.
Giving can generate brand awareness and align your business with a cause. It's also a great way to build positive relationships with new and existing customers. Furthermore, if you give enough, you'll be able to use the charitable deduction on your taxes.
Increase cash flow to reinvest in your business
Choosing how to spend extra cash when you have access to it can be a difficult decision. Whatever you decide, remember to strike a balance between reinvesting and saving. Or, perhaps you are still working toward boosting your cash flow to make investments like the ones mentioned above.
One way to maximize cash flow quickly is to leverage an early payment platform to get paid faster.
Fortunately, there are many ways to optimize cash flow management and free up capital for your business. One way to maximize cash flow quickly is to leverage an early payment platform to get paid faster by encouraging your customers to pay their invoices sooner.