Ask any small business owner their biggest source of stress, and the majority will say cash flow. But, if you are part of the fortunate minority that has a positive cash flow with plenty in reserve, that’s a great problem to have.
The sky is the limit when you’re working with an excess, but you should strategically evaluate your options before breaking out the checkbook. The best thing to do is speak with a financial advisor about your specific situation. At Willis & Machnik, we have years of experience working with business owners to use their positive cash flow to achieve their financial goals.
These are just a few of the strategies we might explore for a small business with a healthy balance sheet:
Put your cash to work. If you find yourself with cash left over after expenses are paid, make sure that cash is working for you through investments. But should you invest in money markets? Bonds? Or the stock market? We will work with you to evaluate your finances, set goals together and recommend tax-smart investments to continue growing your bottom line.
Eliminate debt. Many small businesses accumulate debt when they are starting up, and once you’ve reached a level of profitability that allows you to pay off loans, you eliminate interest payments that have been eating away at your cash. But when should you pay it off and how? We will counsel you on the best strategy for you to pay down debt, while finding ways to improve your profitability at the same time.
Invest in your employees. If your business is thriving, it’s likely because you’ve built a solid team that’s working their hardest. Invest in their future by establishing a retirement plan. With recent changes under SECURE Act 2.0, this year is a great time to get started. In 2023, the new law will increase the credit to help with the administrative costs of setting up a retirement plan. The credit increases to 100% from 50% for businesses with fewer than 50 employees. By boosting the credit, lawmakers hope to remove one of the most significant barriers for small businesses offering a workplace plan.1
Reinvest in your business. Maybe business is booming because you’ve been wisely frugal with expenses and conservative in your growth strategy. Consider investing in capital equipment like vehicles or computers. Or perhaps it’s time to think about growth on a much larger scale by acquiring another company. In either case, a financial advisor can help you determine the optimal time to make big purchases, as well as guide you through an acquisition process.
Pay out cash dividends or bonuses. If you have dedicated investors that have been part of your success, you could use your positive cash flow to pay out dividends. Or reward the hard work of employees with cash bonuses. However, it’s wise to speak with a financial advisor to understand any tax implications and how this will affect your finances.
Make a charitable contribution. Giving to charitable causes is critical to building and supporting communities. If you’re able to give, you can make a real difference in people’s lives—and potentially get your employees involved too. An employer charitable matching program is one way to not only make your own gift, but also to incentivize employees to be part of something larger than themselves and tap into their personal passions. Of course, you should speak with a financial advisor before making a commitment to ensure you’re also doing the right thing for the long-term health of your business.
For nearly four decades, Willis & Machnik has worked with small business owners to identify ways to increase revenue, pay down debt and more accurately project profitability. Give us a call to get started and let us be your complete wealth management partner.
1 Paychex.com, Dec. 30, 2022