Part of the allure of running a start-up is the runaway success many businesses experience, which comes with the pleasant but sometimes tricky problem of what to do with the spare cash in the business. Interest rates on current accounts are currently at rock bottom, which means that the spare cash your business has generated will need to be deployed elsewhere.
It is not always ideal to invest the money back into the business, and for various reasons it might not be appropriate to pay out the cash as dividends either – you may decide there is going to be a future need for it inside the business. Here are some investment strategies to help you get a better return.
Buy bonds or invest in high interest accounts
While business current accounts pay very little interest, cash accounts that involve a time commitment often pay much better. If you are able to do without the cash for a number of months or years, a bank can give you a guaranteed rate that will at least give you some return on your money. Carefully calculate whether you can manage without the cash so that you don’t get your business into a cash flow crunch in the future.
Bonds are also very good options – a six-month government or corporate bond will give you a higher return than leaving the cash in the bank, but will also tie up your cash for a period of time. Depending on your situation, this may be entirely acceptable.
Invest in forex trading
Currency values go up and down every day; something you will have noticed through your personal and business life. It is not just banks that participate in this market; even personal and business investors use the forex market to extract profit. It is the largest and most liquid investing market, so there is a lot of scope for trading profits while making it easy for you to turn your investment back into cash when your business needs it.
Markets are complex, so take a learning course to help you with the Forex Trading Strategies you employ. Strategic considerations include which currency pairs you work with, how long you plan on holding positions and how large a stake you want to invest.
Acquire stocks and shares
If the cash in your business is available for investment over a reasonably long term, you could think about investing in the shares of other companies. Buying shares often means holding them for a period of time, so if you think you may need the cash urgently, shares are not the best option. Shares are liquid investments, so you can usually get your cash back quickly, but there is a chance that it may be at a loss if you need to trade at an inopportune time.
Just because interest rates are low does not mean the extra cash in your business earns no return. Consider whether and when you will need the cash, and based on your financial forecasts, employ the cash usefully elsewhere, by investing in bonds or by trading on the currency markets.