All Financial Wisdom

5 Possible Destinations for Cash Surpluses in Your Company

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During the crisis, most people and experts tried to solve the problems related to the treasury and the financing of companies. The lack of credit and the continuous delays in the payment of the invoices made it difficult for companies that did not have sufficient liquidity to meet their short-term obligations, which exposed them to the risk of suspension of payments.

However, now that we are in better times, there is not so much talk about cash surpluses, it is also an interesting issue that should be managed appropriately, since it also involves a cost: the opportunity cost of having that idle money, without an alternative use that serves to generate a certain performance. For this reason, in this post we will try to recommend five possible destinations of these excesses of treasury.

Greater endowment of reserves

Although it’s usually mandatory to have a certain amount of legal reserves, there are other reserves that depend on the policy of the company. Obviously, the provision of these reserves will not directly affect the development and growth of the business, but it helps to clean up the balance sheet, which can help overcome future difficulties should they be misplaced.

Remunerate investors

Although the objective of all companies is to grow over time, especially in the first years of life, we must not forget that there are external investors who have invested in our idea with the hope of obtaining a certain benefit. For this reason, it is important not to leave this important point aside if we do not want capital to be withdrawn in advance.

Reduce debt

If the company has debts with financial institutions, it may be interesting to amortize some or all of them in advance, since it represents a significant financial saving (the payment of interest). Of course, the strategy has to be taken not only at the level of costs, but also at the level of flexibility, since it can be helpful to keep certain lines of credit open that help in the financing of the company.

Expand the business

If the excesses of treasury are maintained over time, it may be time to open new lines of business and grow the company. By the way, this probably shouldve been my first point. And we are talking not only about traditional investments in capital goods, such as computer equipment, vehicles, land, etc. but also in the acquisition of other companies that operates similar lines of business.

Investments in portfolio

On many occasions, investments in capital goods may take too long to mature. Therefore, a good destination for our money could be investment in financial instruments, such as an investment fund, shares of other companies or fixed-term deposits that generate some type of interest.

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