What can I do with a surplus of cash in my small business?

Question

I have money in my small business' checking account. Can I invest it? What are the options and legalities of investing and earning interest for a business?

I've only owned my business for 7 months, and do not have an educational background in business or finance, so sorry if my question sounds dumb.

Answer 1

as long as you are the sole proprietor of the business, there are no legal issues related to how you spend the surplus, but there are some tax ramifications.

I don't know what kind of business you operate, but you might want to invest in inventory or supplies that you can buy now at discount prices, create an advertising fund that you can later use for special promotional purposes, or buy or upgrade needed equipment. Finally, you might want to treat yourself to a "business seminar" in the Bahamas or Hawaii (wink, wink). All of these are tax deductible as business expenses.

Answer 2

I dont think there are a whole lot of laws. This is not really something an education in Finance would tell you, more like an education in law.

I think, based on what your business does, you might only be able to derive a certain percentage of income from outside investments? Not sure on that, I thought I once read something about that.

Anyway, I think its probably a smart idea to keep the money in a checkable money market account. That way youll have limited access to it if you need a major asset purchase. Most investments, including CDs, usually dont provide any flexibility, and I think its a mistake to tie up business funds in non-essential investments.

Answer 3

First of all, celebrate: most small businesses don't make much of a profit, if any. As for legalities, much of what you can do depends on the nature of your business: if it's a stock corporation, one-person corporation, or just you and a cash drawer.

What you first must do is to set up a proper set of accounting books. These will tell you whether that extra money is really profits or is simply waiting there to pay bills that will come due soon. Get a book on bookkeeping for small businesses out of the library and read it straight through.

Answer 4

congratulations! its not everyday that a small business owner actually has a surplus!

you might want to approach your bank to discuss switching to an interest earning business checking account. that way, you can earn some interest on your money while it just sits in the account.

or, if you don't take a regular salary from your business, you could pay yourself - this will of course mean income taxes for you, but nice to pay yourself for your hard work.

you definitely should reinvest into your business itself - how old is your business pc? do you need a copier, fax, printer, scanner, etc...? how about a vehicle - does your business require you to have access to one? if so, you can also deduct the purchase price of the vehicle (check with your tax preparer for specific state regulations) as a business expense.

my husband is self employed, and works from our home. we have a CPA do our taxes for us. it costs a little more, but they can spot and take advantage of tax deductions that we simply wouldn't know about (we don't have finance or business degrees either). i highly suggest that you visit with a CPA in your area and see what they can tell you about re-investing your business capital.

Answer 5

Put away at least 3 months of operating costs for emergency. That is a must!!!! Then if you have anything left over invest in some more inventory or in an upgrade of the appearance. .

Answer 6

Invest, money market, certif of deposit, donate to a charity (then use as a tax write-off) Endless possibilities. Send me some, 4 kids and lots of dr bills (really no kidding). Good luck.

Answer 7

Normally there are several options:
1. take out that money as salary for yourself
2. you can invest back that money into your business - purchase stock or equipment
3. put in bank as investment

Answer 8

Reinvest it back into your company, then call your accountant and tell them what you did. They will congratulate you on increasing your retained earnings. hahahah It's a good thing

Answer 9

You can use it to start another business if so inclinded or invest it.

Answer 10

Loan it to me