By Akhil Shahani, an EO Mumbai member and CEO of The Shahani Group
So you made some extra cash in your first business. Planning to blow it all? Not a bad idea, but you could do better things with the money. Investable surplus is what remains after all liabilities have been taken care of and therefore could be plowed back into the business. Growth and business expansion is impossible without timely reinvestment and hence, any investable surplus should be dealt with appropriately.
Depending upon the nature of the surplus, recurring or one time, one could utilize it in different ways:
Business cycles: Economic forecast are more often than not exaggerated and very rarely do the predicted boom phases last for long. You may need to hire a professional to help you analyze the market conditions. Also check whether the surplus is something that you could expect periodically or if it is a one time gain. Knowing this will help you plan better.
Operating surplus: Every business should maintain operating surplus for at least three months. This will help you tide over the difficulties of a particularly bad season, or any other budget constraint. So, when you come across some investable surplus, ensure that you are building or maintaining your operating surplus.
Taking care of other liabilities: Once they pay off outstanding loans, small business owners can concentrate on their future plans much better. Financial planning can be streamlined once the business is rid of excessive debt.
Improvements at work: Technological developments move rapidly enough to reduce what is latest today to obsolete tomorrow; use the surplus to update outmoded technology or install a new appliance. A part of the surplus could be shared with employees in the form of a bonus payment. Throw a party for them if you like! Compensating employees thus helps them enjoy work better.
Investment outlets: Money markets offer a great variety of products. To make the most of all the opportunities out there, get in touch with an asset management firm or financial adviser. They could customize your portfolio to suit your needs. Read our article on Asset Management for more. “An Introduction to Financial Products and Markets” by Lindsay Fell, could also be of use.
Business expansion: Contemplate this if you have been in the business for some time. The surplus from the existing business should now be directed towards some serious expansion. Consider a new location, maybe a new venture altogether. If you aren’t ready for another business yet, consider helping out someone who is, by becoming an angel investor. That way you ensure your involvement in an upcoming business without half the trouble of starting up! Get hold of “Successful Expansion for Small Businesses” by Danny Moss and Laurence Clark to learn more.
A business is not likely to generate huge investable surplus in the first few months of existence. Patience and prudence are of key importance. Tempting as it may seem to fritter it away, such surplus is best utilized when deployed back in the business. After all, there is nothing more gratifying than seeing your money grow, right?
Akhil Shahani is a serial entrepreneur and blogger of SmartEntrepreneur.net.