As =
your
business matures, the time will come when you will see excess cash and stea=
dy
profits. Then the question arises of how to further increase the profits of
your company. The stock market in recent years has been particularly unkind=
to
the large companies that invested heavily in it. So plowing your profits ba=
ck
into your company may be the shrewdest move you can make in good times.
Low=
ering
your overhead is a logical place to start, particularly if your rental paym=
ents
keep going up. That may suggest to you that it’s time to buy your cur=
rent
building or look for one to purchase, so that you acquire a manageable mort=
gage
that costs you less per month than renting. And once the space is yours, you
can design the layout that will best maximize productivity. Longer term, you
benefit from having the value of the building on your balance sheet and may=
be
able to protect some of your profits from taxes due to the depreciation
allowance.
Ano=
ther
approach to building value for your company is taking advantage of down mar=
kets
to buy additional inventory—taking advantage of volume discounts and
discounts at the end of a supplier’s selling season—or acquire
better equipment. The latter approach might include computerized and electr=
onic
systems that can improve internal processes—again enhancing productiv=
ity.
How=
ever,
another use for excess cash is to invest in financial instruments. You may
decide, for example, that excess funds are best kept in treasury bills or
certificates of deposit (if you can keep them there at least 90 days). Most
likely, with available funds in excess of $100,000, you can make transfers
between your checking account and your interest bearing investment account,=
despite
the limit on the number of checks you can draw on the interest bearing
account.
Las=
tly, you
may want to consider acquiring a smaller company as a way of growing your
business and expanding market share. If you go this route, prepare to learn
more about business valuation at the same time you’re scrutinizing su=
ch
assets as property, equipment and inventory, to be sure you really need the=
m.
If =
you
would like to discuss this topic or business planning, business growth
strategies or a specific business issue, contact SCORE® “Counselors to
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