The financial organization is also the nucleus of a company’s growth. After all, only through effective planning and strategic resource usage can a company reach the next phase of development.
On this note, the decisions regarding the capital left in the cash register of the company are of great importance in the managerial decision-making processes. This is because the money can be utilized in different regards.
Would you like to know more about this problem? In this paper, it will explain what to do with the excess cash of the company and why a strategy in regard to this cash is important.
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What is the surplus in the company’s cash register?
Before understanding more about the surplus money in accounts, it is interesting to remember the concept of company cash. It refers to the resources that the organization has available to carry out its transactions.
Cash flow is how the management of this capital happens. It is a tool whereby the financial sector and company managers are able to monitor the inflow and outflow of resources.
Cash flow allows for an easier view into the financial health of the business. Additionally, in using performance indicators, it contributes to improved decision-making; adjustments to planning in the company.
Once you understand this, you can understand that surplus cash is the excess capital in the company’s cash register. For example, if sales exceeded expectations in a given period, without new expenses, the organization made more profits.
This surplus may indicate that the company is in a good financial moment. Therefore, it is opportune for managers to design strategies to use the resources to promote its growth.
Why is it important to have a plan for surplus cash?
Now that you have learned more about surplus cash, you need to know the reasons for planning its use. This will make it easier to visualize its importance in the company’s strategic planning.
First of all, it is important to remember that idle money will lose purchasing power due to inflation . This means that, even with profits, failing to use these resources strategically can cause them to lose value in the medium and long term.
Furthermore, money can serve as an instrument to accelerate your growth. After all, since there are more resources available, it is possible to add them to the current financial strategy and increase the potential results that the company can achieve.
What to do with the surplus in the company’s cash register?
As you can see, having a plan for the surplus cash in your company can be beneficial for your financial strategy. Therefore, it is worth knowing alternative uses for the money.
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Create a financial reserve
Creating a financial reserve is one of the main alternatives for having excess cash in the cash register. It consists of capital that can be used to bring more balance to the company’s daily operations.
In practice, the reserve represents money that can be used in times when the organization faces difficulties. After all, it is natural to go through periods of financial instability and with less capital inflow.
This money can therefore guarantee greater peace of mind for the business, minimizing the chances of the company getting into debt. In other words, it will be possible to deal with the downturn with less damage to its financial health.
If your company does not yet have a financial reserve, it is worth focusing on this objective with the excess cash. There is no ideal amount for this, but it is interesting that it is enough to cover at least 6 months of the company’s expenses.
Make investments
Excess cash can also be used in an investment strategy — whether in a company or in the financial market. It is important to move resources and increase capital, preventing it from losing its purchasing power.
One alternative is fixed-income securities from the financial market for legal entities. They allow companies to lend money to financial institutions, for example, to receive it with interest added in the future.
In addition to financial market securities, managers can use the company’s surplus cash for new investments focused on expanding the business’s operations. This option may include hiring new employees or purchasing assets, for example.
Distribute profits
Profit sharing is also an opportunity for companies. The practice works to remunerate people who helped the organization achieve the positive results that generated surplus cash.
In this sense, dividend payments are an alternative for publicly traded companies. They consist of a portion of the organization’s net profit that will go to its shareholders.
This may also be an option for privately held companies, such as startups , that have received financial injections from investors. Although the transfer may not be mandatory, depending on the type of agreement, it is usually seen as good practice.
For closed companies, the surplus money can increase the distribution of profits among direct partners or serve as a bonus for employees. In this way, they will receive the incentive as recognition for the results they have achieved.