What to do with excess cash?

[kandykane]

Hi, I run an equipment sales firm. We have cash just sitting around and need to do something with it.

Right now we have excess cash in a money market account, earning a whopping 1% :D

We have thought about purchasing a small office building, instead of leasing, as an investment.
The other big item we are going to do is expand our sales force... so we are allocating some cash to their salary(ies).
We are going to put a few thousand dollars towards marketing materials, website, etc.

But other than that, there's nothing we need like equipment, tools, etc. So what do we do with the extra cash to help grow the business?

Thanks

[huggytree]

why not take it as profit and enjoy it?

if your advertising budget is working for you and your not ready to expand id cash it in and take it

at the end of every year i take everything out of the company except for $10k for operating expenses.....i empty out the company....why keep money sitting around for no reason?....that extra $ you have is called 'profit'...take it

[ReganP]

Until a need or new idea arises, just keep saving it! You never know when business might get slow or competition increases, so save it as an emergency fund for when you really need to amp up the marketing or make it through the lean months!

[Evan]

As a growing company, distributing it will not be a good idea as if things go sour you're going to want to have some savings. You could invest it in securities, such as mutual funds and such. Then you'll have more opportunity to grow these assets.

[MyITGuy]

If you have enough set aside to cover any slow periods, then I'd say look at buying a building to operate out of rather than leasing.

[alphadore]

I would put some aside as retained earnings and take out the rest. Get yourself a vacation perhaps to reward yourself for your hard work?

[multiplexed]

And don't forget your retirement account.

Spend an hour with your accountant, investor, and computer guy.

[kandykane]

Thank you for the replies. I like the idea of a vacation :) but want to reinvest money into the business so I can take bigger and better vacations later!

[ArcSine]

Under the right circumstances, excess cash + desire to grow is a combination that leads to buyout thoughts. Acquiring a similar company could be one way to fast-track your growth. In one pop you take on additional market share, customers, sales force, know-how, etc.

Natch, it's highly situation-dependent; definitely not a move that's advisable except under the just-right intersection of circumstances. Scores pretty high on the Risk-O-Meter, to boot.

Still, on the chance you happen to be sitting squarely in that just-right intersection, a small buyout of a similar / competing company might be an investment that translates most directly and quickly into some significant growth.

On a different tack, don't forget the right-hand side of your balance sheet when looking for productive places to park your excess cash. Paydown of some debt would produce an investment return that beats the 1% yield on that CD. And if you're pretty sure you could re-borrow it again if needed, it might be a good way to earn a better return (than the CD) while waiting on an attractive investment (such as a buyout, or a small office building) to present itself.

Just a couple of thoughts, and congrats on having such an enviable problem!

[TomWbl]

As mentioned congratulations on reaching an enviable position.

Some good ideas have been suggested also consider giving a one time bonus to your top employees. Above all however make sure your 'emergency' fund is full.

[krymson]

I would say put 75% of it away for an emergency fund use 20% and give back to employees, and the other 5% put away for any emergencies... maybe invest it to a pension fund think about the long term for you and your staff...

[kandykane]

Thank you for the really nice responses. There are definitely some good suggestions in here.

You mention being in an enviable position.. that only came from years of hard work and running the business conservatively.

Now we are ready to put the money to use and grow more!

Commercial real estate is expensive! Pound for pound versus residential.. just seems like you get less for more.

I'd love to find another business to purchase one day. Sort of a scary thought, but an exciting thought too!

[Pss]

If your real estate is important to your operation (eg there are special reasons why it would be hard to move once you get there because of equipment or something) and you are unlikely to grow or expand to need more space, you might consider buying a building. For most people, they can lease a space in a better location, for less money, with more flexibility to grow, then they could if they bought.

If you just need regular office space, consider looking at existing multi tenant office buildings that you could invest in and also move into. But also consider that the best investment may be a property that is unsuitable for your business, but still a good deal. That would be better than overpaying for a place that works for your business but itsnt actually a good investment deal.

[BP Writer]

OP was 2 months ago, but if you are still pondering what to do with excess cash I agree with the options ArcSine mentioned. I would look at any long term liabilities first to either pay them down, which gives you an automatic return, or restructure/renegotiate them while you are in a strong position to do so. As far as purchasing a building, that decision should be made on its own merits -- and I would set the bar high given the fixed nature of real estate, the relative lack of liquidity of RE investment, and the inherent risks (e.g. potential for depreciation).

An acquisition would be something to really consider if it fits with your plans for the business, and of course a suitable candidate exists -- but I tend to be very conservative about such deals and would be on the lookout for a "fire sale" price because very often the acquiring company is too optimistic about the benefits they will gain and wind up overpaying when those benefits don't materialize to the degree originally planned.

I'm curious - do you provide financing to your customers for their equipment purchases?