Using Excess Liquidty in Business

This is probably the greatest problem an entrepreneur can have. Your business is rolling, its cash flow is good and you are profitable. At some point, your bank account balance begins to fatten.

Obviously, accumulating money is not a defect, but we must realize that it is an underused asset. The question is: how to get the most out of it?

Where is that from?
First, you need to understand where that money is coming from. Is it the result of selling a big piece of equipment or a stellar performance last month? Or is it due to a bigger trend, about your business generating excess cash month after month?

Obviously, the first scenario is less enviable than the second. Check if this sum will not be useful to you in the short or medium term to pay loans, taxes or simply to keep the company afloat during more difficult periods. If you think this will not be the case, you can consider this money available.

What to do with it?
Several options are available to you. Assess your business situation to make the best decision.

1. Stock up
Having cash available to parry blows and seize opportunities is never a bad thing. Except that, as we wrote above, this money sleeps. If you think you will need these sums in the coming months, try to find a vehicle that allows you to make them grow without immobilizing it too severely.

2. Pay your debts
Take the opportunity to repay your creditors. Be careful though: getting funding is always a challenge. Consider your options carefully and make sure that money couldn’t be better spent elsewhere before you clean the slate clean. This option is interesting especially if your loan conditions are disadvantageous.

3. Shop
The cost of raw materials can cause your expenses to fluctuate. If you have the storage, you can stock larger quantities trying to save on price. The risk associated with this strategy is to buy a lot of them at a relatively low price only to find that it keeps falling. Also, you do not want to create space or logistics problems.

4. Finance your growth
With funds available, there are several ways to grow. You might consider buying another business, getting equipment, technology or software that improves your productivity, or expanding your business into new markets.

5. Build employee loyalty
If your company is doing well, it’s probably because your employees are doing well. You could reward them. One obvious way to do this is to pay bonuses to your team members. This can be a double-edged sword: you will create expectations for the following year. Make sure your employees understand that these bonuses are firmly tied to good business performance. You can also take the opportunity to do activities and build their sense of belonging ( team building ) or improve certain working conditions.

6. Invest
Try to make your money grow by investing it. Depending on your degree of risk tolerance and your future liquidity needs, you can tie it up for the more or less long term.

7. Pocket
You started a business partly to make money, so maybe you could use some to plan for your retirement or to add to your bank account balance. If this is the option you choose, discuss with your accountant to establish the best strategy (dividend or salary increase, for example) to take out these funds while minimizing the tax you will have to pay.

Ultimately, having excess cash gives you freedom. Spent wisely, it can help you deal with different problems and improve your situation. This is why it is better to carefully assess the context and your personal objectives before using it.

Eleanore Frinqois

Eleanore Frinqois, Lead Editor at is a business leader with over 30 years in both start-up and enterprise level organisations. Previously Operations Directer at a £1.8BN media group, alongside setting-up and later selling 3 digital brands - Eleanore has expertise across all aspects of business growth.

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