Small-business owners have tightened their belts in the past few years, and now that sales are improving, many are finding themselves with a surplus of cash. In fact, according to the Wells Fargo/Gallup Small Business Index just released, 53 percent of small-business owners describe their cash flow situation over the past 12 months as either “very good” or “somewhat good.” If you’re among these businesses, there are some smart moves you can make with the cash that make sense in a recovering economy and will help you improve your financial outlook. Here are five ways to use surplus cash that will benefit your business.
Pay Down Your Debt
According to Debt.org, 49 percent of small-business owners are in major debt. Debt can damage your business by forcing you to use profits to make payments on interest instead of reinvesting in growth or improvement. In addition, the interest on those loans can quickly drain money that would otherwise be counted as profit. But if you use your cash surplus to pay down or completely pay off those debts, you’ll free up money you need to grow your business, while saving on interest. Be sure to pay the debts with the highest interest rates first.
Reward Loyal Employees with Raises or Bonuses
After years of pay freezes, a 2013 study by Glassdoor shows that 42 percent of employees were expecting a pay raise in 2014. What’s more, the fear of losing their jobs is at an all time low since 2008. With the economy picking up and thoughts of business growth a serious consideration, it makes sense to lock in your loyal and productive employees before the competition approaches them with an offer. While the average pay raise remains at just 3 percent, according to Towers Watson, top performers can expect raises of about 4.7 percent.
Reinvest in the Business
The Wells Fargo/Gallup poll found that 50 percent of business owners surveyed said that they planned to increase the amount of money they spend for capital investments, including technology upgrades, in the next 12 months. After years of cutting back, it might be the right time for your business to make some capital investments or embark on that new marketing campaign, hire a new salesperson, build a mobile app, or whatever else has been on the back burner while waiting for the economy to improve.
Increase Your Own Salary
How long has it been since you’ve given yourself a raise? You’ve likely put blood, sweat, and tears into making sure your business made it through the past few rocky years, and now that you have some extra cash in the bank, you could choose to reward yourself for the effort. You can use the U.S. Census Bureau’s Earnings by Occupation and Education tool to compare your current salary to what others in the field make to help you decide how much of an increase you’ll take.
Put Some Cash Aside for Unexpected Emergencies
If there’s one thing small-business owners learned over the past few years, it’s that anything can happen. Many entrepreneurs got caught in the trap of needing additional funds, yet remained unable to get a loan, for example. Now that you have some extra cash, it might be a smart move to set some aside for unforeseeable events. That way, you’ll be better able to withstand any storms that come your way.
Having surplus cash is nice, but make sure that you use it in a way that will benefit your business in the long run.