When we find a few extra sawbucks in our pockets, we’re never at a loss to find a use for them. Some prepare for retirement or invest in the stock market; others add to their savings, and then there are those of us who use the money just for fun.
But how should a business handle excess cash? There are several factors to consider. Whether you are looking for short- or long-term returns, the amount available, and the desired access to cash all impact the success of your strategy.
Brad Forward investment executive for Key Investments in Akron, a subsidiary of Key Corp., suggests smaller companies looking for short-term returns take advantage of money market accounts through their banks. This allows immediate access to cash and offers a 4 percent to 5 percent return.
Another option is a renewable seven-day certificate of deposit, which allows for liquidation at the end of each week. Interest rates range from 4.5 percent to 4.75 percent, Forward says.
A long-term strategy could include an investment in mutual funds.
“Investors have to realize the markets have volatility,” Forward says. “There’s no guarantee of returns on the market, but as we’ve seen in the last few years, it’s provided explosive returns.”
Dave Myers, taxes director for business consulting firm Heinick, Apple, Palmer, Gaino, McCann based in Akron, sees a different approach for excess cash.
“I’m a believer in trying to work down debt with extra cash,” Myers says. “Or consider paying yourself a bonus. Business owners deal with a lot of stress and worry, and it may be worth it to take some extra salary home.”
Myers suggests “paying down lines of credit,” which provides an immediate impact on interest charges.
Another option is inventory acquisition.
“Sometimes assuming a greater inventory can provide better prices, but the costs of carrying the inventory must be weighed as well,” Myers says.
“Investing in the company, perhaps by providing new technology to employees, can also help make a firm more efficient.”
How to reach: Key Investments (330) 379-1444 and Heinick, Apple, Palmer, Gaino, McCann (330) 867-7350