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How Does a Cash Surplus Benefit a Business?

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Benefit of Surplus Cash to Business

What is cash surplus?

A business’s cash surplus is the amount of money it has available over and above what is needed to run its day-to-day operations. A company’s cash surplus can help it manage its finances, invest in new products and services, pay off debt, and expand into new markets. A business with a positive cash flow is more likely to be successful than its competitors because it can afford better services and technology while maintaining higher employee morale.

Cash surplus is the difference between cash on hand and the amount of cash needed for day-to-day operations.

5 Ways cash surplus can benefit your business 

1. Lowered debt.

Surplus cash lowers your debt. First, debt can be used as a tool to secure funding for your business. You can use debt to purchase inventory, equipment and hire more employees. And the best part? It’s tax deductible!

However, if you don’t pay off the loan or debt when it comes due, then you’ll owe interest—and there are penalties for late payments or defaulting on your loans.

With surplus cash, you’re able to pay down debt over time without incurring additional interest charges by making regular payments on time every month. This is obviously preferable since doing so reduces cost over time compared with simply letting outstanding balances sit around collecting interest.

2. Better access to credit.

A cash surplus can be a good indicator of a company’s financial health. A company with a cash surplus is more likely to be able to borrow money and make large purchases, which may be beneficial for your business in the long run.

For example, if you want to start purchasing equipment for your workplace but don’t have enough money at the moment. Then it would be helpful for you to have access to credit lines that allow you to purchase what you need without having to worry about paying right away. This will help prevent any delays while waiting for payments through traditional methods like checks or credit cards.

Cash surplus allows you to use your excess cash for growth.

3. Increased ability to invest and grow.

Surplus cash allows you to:

  • Invest in new equipment.
  • Invest in new employees.
  • Invest in new products and processes, markets, or facilities to increase production capacity.

An example:

A business could use cash surplus to invest in technology such as e-commerce or an online database for its customers to use if they have a question about a product. The company could also buy software that will allow it to keep track of inventory levels more efficiently than before so that the company doesn’t run out of stock before it gets paid for those items by customers who want them shipped directly from their warehouse. 

4. Higher return on investments.

One of the biggest benefits of having a cash surplus is that you can invest more money in your business. If you’re looking to launch a new product, increase your advertising budget, or start testing out new ideas for your company’s technology, having access to an extra N10 million on top of what you already have will make all of those things much easier to accomplish. The same applies if you want to hire more employees or expand into new markets. Once again, this is possible because there’s more money available in general. 

5. Improved employee morale.

While a business’s cash surplus can be used to offer employees discounts on health insurance and other benefits, for example, it also has the potential to improve employee morale. When employees feel like their employer is doing well and has a bright future, they are more likely to work hard for that company. Employees who feel like they are part of a winning team will be less likely to seek employment elsewhere or simply not show up for work as often as before.

A business that has a cash surplus can better weather bad times, invest more in its future, and attract better employees.

A cash surplus is a good thing for any business. It’s a sign that the company has been successful, and it gives the business more financial flexibility to invest in its future. The company can pay for new equipment, hire new employees, or even purchase other companies if it so chooses.

A surplus also means that the company has enough money to weather bad times when they come along. When a recession hits or another economic crisis happens, having extra cash will allow your business to stay afloat until things get better again. This can be particularly important if you’re in a niche market that’s especially vulnerable during recessions (like an energy company).

How to Grow Your Company’s Excess Cash

Invest your business cash on Sprout

With Sprout by Cowrywise, you can invest your surplus business cash and create an additional income stream for your business. We’ve got you covered with a range of low-risk investment options with attractive yields.

Learn more about Sprout.

Invest in your business

Investing in your business is also one of the ways to grow your cash surplus. This means putting money back into the company, rather than taking it out like you might have done in previous years if you had a deficit. There are several ways to invest like starting marketing campaigns, establishing employee profit-sharing programs, etc.

Bottom line

There are many benefits to having a cash surplus. It can lower debt, improve your access to credit, increase investments and growth for future prospects, help keep employees happy and more. So how do you grow your company’s excess cash? One way is by investing with Sprout. Another is investing back into your business, cutting costs and reducing liabilities through better financial management techniques like budgeting.

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Can a Company Hold Too Much Cash?

6 Ways to Save Money in Your Business

What to Invest in During a Recession

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