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Dec 22B2B CFO

Excess cash in your business? Consider yourself lucky & A few thoughts on what to do

Dec 22B2B CFO

First – well done if you’re in this enviable position! Kudos!

Before we jump to any hasty conclusions, check your rolling Cash Flow Report and make sure it truly is excess cash.

  • Are there extraordinary/balloon payments coming up?
  • Is it related to customer prepayment or timely billing that there will be expenses to pay?
  • Is your business seasonal and may be needed to reach the next busy season (although if that obvious point was overlooked you probably don’t have excess)?

What appears as an excess may be a timing difference.

Yet if it’s real, how it’s managed can have consequences, even if you do nothing. A few thoughts:

  • You earned it – pay yourself, your key contributors, pay a dividend. Beforehand be sure to consider the tax consequences. A bonus or raise is fully deductible for your business, a dividend, while taxed to you at a lower rate, is not deductible by your business. Be sure to consider the whole tax picture to determine what the best strategy is for you.
  • Buy back stock – perhaps you may have shareholders looking to liquidate their position or perhaps you’d be happy to not have them as shareholders ;). You should have a current valuation of your company to get this done right.
  • Upgrade equipment and take advantage of Section 179 accelerated depreciation deduction.
  • Consider an acquisition.
  • Pay down debt.
  • Pay down vendors offering favorable prompt pay discounts. If you haven’t, you should be doing this routinely as your cash position permits.
  • If you’re close to your exit, be mindful of excess cash that may not qualify as capital gain.

Excess cash is a true sign of your success, consider yourself fortunate but make sure it’s working for you.

B2B CFO®

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