Safe investments are necessary to build up the assets of a business. A business needs not only to take money in, the business needs to save money in escrow. One of the worst mistakes a new small business owner is to spend money without much care or concern. When cash flow is good, the desire to spend rises. This really has to be avoided.
Money needs to be put in safe investment vehicles to support the business. Money markets and checking accounts are fine for quick access to cash. Businesses require liquidity. As the business continues to succeed, the owners may consider moving money into better investment vehicles. The stock market is probably the one venue in which people direct the bulk of their investment dollars towards. There are exceptions, but many find the stock market their preferred vehicle. The stock market is, however, volatile.
Another option exists for business owners. Moving the money from a business checking or money market account into a certificate of deposit account is possible. Of course, the owner of the business has the option of putting the funds in his or her name as opposed to the business’ name. Circumstances and accounting practices will dictate what particular option to explore. The key point here is money from the business is being saved and allowed to draw better interest.
Low-Interest and Risk Avoidance
The obvious positive associated with a certificate of deposit is the lack of risk. A five-year certificate of deposit issued by a major bank is not likely to default. A business owner might discover 1.5% or 2% interest from a certificate of deposit to be more than adequate. Granted, interest rates that low does not exactly increase net worth dramatically. $100,000 saved at 2% interest compounded once annually turns into $121,899 within ten years.
At the very least, low-interest investments can act as a decent hedge against volatility in the market. If a business has some unexpected expenses, the compounded interest opens doors for accessing more cash, cash that might help keep the business solvent.
Expanding Cash Flow
While it is true money can be withdrawn from a certificate of deposit, a penalty would be imposed. Additionally, taking money out of the business’ safety net might not be the best strategy. Improving cash flow efficiency could aid in cutting down on fiscally tight periods.
A site such as http://mypaymentsavvy.com/would be worth exploring for those interested in boosting cash flow expedience. Instituting a new payment processing system, a reliable one, increases the ability for a business to access funds quicker. In addition to accessing funds to cover expenses, funds can move expeditiously be put into short-term investment vehicles.
Vital Business Tasks
Business owners positively must invest time, effort, and energy handling seemingly mundane legwork in order to increase the chances of financial success. Then again, those looking at maintaining fiscal solvency and maximizing cash flow efficiency as mundane tasks would benefit from rethinking their opinions. Such things are not minor and do play a major role in the health and long-term outlook of a company.