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CEO Insights On How To Leverage Idle Cash To Grow Business Wealth

CEO’s Insights On How To Leverage Idle Cash To Grow Business Wealth

When starting a business, we focus on solving the problems of our customers. 

While helping our customers in solving their pain points, I discovered one of my own – business’ idle cash! 

Well, after serving as VP at Goldman Sachs, I turned my love for technology into a boutique web and mobile development agency: Systango. Soon, I realized to build a sustainable business, I need much more than a talented team working on best-of-breed technologies. One of my earliest mistakes was letting the business’s cash sit idle between payments from the clients and payrolls or major expenses. 

Idle cash can be a game-changer in building business wealth. Hence, through this article, I would like to share insights on how to leverage the idle-sitting cash to invite more wealth to your business –

Let’s start with understanding what idle cash is. 

What is idle cash?

Any cash that’s sitting in a business’s bank accounts and not engaged in any transactional activity like investments, buying assets, paying salaries, dividends, generating interests, etc., is known as idle cash. Idle cash is a risky affair for businesses that are seeking substantial growth as if not invested correctly, it will lose its value over time due to rising rates of inflation. 

A business can have idle cash in its accounts due to multiple reasons like a sudden cash influx due to increased demand and increased sales, cash in accounts in between the payrolls, sale of an asset, decrease of liabilities like a loan or bill, etc. 

As a CEO, I often find myself with some free cash sitting in my bank accounts now and then. Even though there are regular transactions, there’s still some cash that’s not needed immediately. This is what I precisely call “idle cash”. This cash is just sleeping in the bank accounts, not being utilized in immediate expenditure, nor yielding significant returns.

The problem with idle cash that most businesses face is that even though they don’t need it immediately, they might need it during an upcoming expense or an emergency. Business owners resist investing their idle cash because they fear they might not be able to liquidate it when the time comes. 

Is It Okay To Let Your Cash Sit Idle?

While it’s easier for CEOs & CFOs to forget about the cash sitting idly in their bank accounts, it can prove to be a business faux pas in the longer run.

During the simpler times, it was a convenient option for businesses to keep their idle cash reserved as an emergency fund or security to carry on next year’s business activities. 

But the present time is not so simple anymore. Now you can not afford to let your cash sit idle in your bank accounts. The competition has grown more rigorous than ever before, inflation is constantly rising, and effective small business wealth management has become quintessential for forerunners of businesses. 

Bonus Read: CEO’s Lessons On Recession And Adapting To Volatile Market Conditions

To stay competitive and keep the business afloat, making your idle sitting cash work is an excellent option. 

Let’s dive into how you can make your idle cash work for you.

How To Leverage Idle Cash To Grow Business Wealth? 

Benefits of investing business' idle cash

While there are multiple ways to invest your business’s idle cash, the best way to make your money work is by making short-term investments.  Here is short term mutual fund investment strategy for businesses.

Short-term investments are categorically the best way to grow your idle cash within a limited time by getting substantial returns that your normal bank accounts can not provide. 

However, I understand that any business owner would worry about liquidity and risk before selecting an investment option like short-term mutual funds. 

Mutual funds are categorized into different types based on their lock-in period, liquidity, returns, and risks. For businesses looking to invest their excess sitting cash, investing in short-term, liquid and less-risky mutual funds can be the ideal choice.

Short-term debt mutual funds check all the boxes; they are highly liquid, have a short lock-in period, are way less risky than stock funds, and yield much higher returns than bank accounts. 

You might want to consider mutual funds options like overnight funds and ultra-short-term funds if you want to invest your money for a couple of days. Overnight mutual funds come with a lock-in period of just 24 hours, which makes them a perfect option for you to invest your idle cash over the weekend or during the upcoming holidays. 

If you have the time and liberty to invest for a little longer period, say 30 to 90 days, you can consider investing in liquid mutual funds or ultra-short-term mutual funds. 

In case you are wondering why you need to fret about investing your idle cash, here’s the bright side of investing you need to look at:

  1. Increase your company profits –

Business owners often have surplus cash sitting idle in their bank accounts bringing them zero returns. By investing that idle cash in liquid and flexible opportunities like debt mutual funds businesses can earn stable and steady returns, which adds to their profits.

  1. Creates additional source of income –

Market volatility, growing inflation, fierce competition, and changing customer preferences may create adverse conditions for a smoothly running business. It is, therefore, crucial to have an additional source of income so that crises in one business can be supported by other businesses.

  1. Helps you achieve your business goals –

To grow and sustain the cutting-edge competition, it is crucial for every business to expand, upgrade technology, add new services, launch new products, hire new resources and enhance the workplace infrastructure. All this requires a substantial amount of capital, which you might or might not be able to manage from your profits.

By investing, corporates can generate profits outside their business, which will prepare them for their business goals financially.

And it’s not limited to just an additional source of income or buying assets, investing idle cash can also help in paying dividends, paying back debts, buying back stocks, and a lot more. 

I hope these reasons are good enough to convince you to start investing your idle money. Now that we have looked at the bright side of investing, let’s find out why I suggest investing idle cash in mutual funds.

Why Mutual Funds Are The Best Investment Option To Park Your Idle Cash?

Stable Returns

Debt mutual funds offer a fixed interest rate, meaning the investors can rest assured of receiving stable returns until the maturity period. If you are a business owner with a low appetite for risk, hence looking for investment opportunities that can generate stable and steady returns, then debt funds are a highly relevant investment option for you. 

Diversification

Investing in a single stock could be risky. Mutual funds allow you to minimize that risk by investing in multiple stocks. Therefore, you don’t lose all your money if something with one company goes wrong. 

Tax Planning: 

An investor can save many taxes by investing in mutual funds. Equity Linked Saving Schemes (ELSS) provide tax benefits of 1.5 Lk to the investor under section 80C of the Income Tax act. Also, if an investor invested for more than 3 Years in a mutual fund.

High-Liquidity:

Some of the mutual fund instruments come with zero liquidity, which means you can redeem your investment whenever required. For example, there’s no mandatory lock-in period like bank fixed deposits for debt funds. You can in-cash your debt fund investment whenever you want to. This empowers businesses by providing them with a source of cash in case of emergency expenses. 

Professionally Managed: 

Mutual fund investments are monitored and managed by professional fund managers who supervise when and where the pooled funds are invested. Investments are made after doing exhaustive research and keeping market trends in mind.

Final Tip – Leverage Technology To Put Your Idle Cash To Work

Investing your idle cash is all good but how you are doing it is also something that needs to be considered. Figuring out the idle cash situation, finding the right investment option, doing the paperwork, and finally investing is an exhausting process. 

Leveraging technology can take you a long way in your investment game. As a business owner, you have many pressing issues to attend to and you simply can’t put all your attention into identifying and investing the idle cash. 

Shootih is India’s first business wealth management platform that helps business owners track, manage and grow their business wealth. Even though many platforms offer mutual funds investment, there’s hardly one that’s tailor-made for businesses. 

Shootih is an AI-powered tool that helps businesses easily invest their idle cash into mutual funds and also provides them with a consolidated view of all their mutual fund holdings on one single screen. 

Investing your idle cash is all good but how you are doing it is also something that needs to be considered. Figuring out the idle cash situation, finding the right investment option, doing the paper, and finally investing is an exhausting process.

To see how Shootih works, you can book a free demo with our product expert: https://shootih.com/

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