In this article, we will share some unique points on How to Invest Cash, which you have in your bank account or have generated through your business.

How to Invest Cash

#1 Mediums of Cash Inflow

Following are the 4 mediums of cash inflow:

• Profit – It means that business is running successful and you are earning revenue from it. Out of that revenue, you take out your invested cost and the leftover is the profit.

• Cash in Advance – It means you have done the selling, take the advance, but not given the product or service to the customers yet. For taken in advance, but the service is given in the next 12 months.

• Deferred Payments – This means you have taken material from suppliers but you have not given them the payment.

• Fundraising – It means you take money from investors, financial institutions, or loan from bank.

#2 Where to Use Profits

1. Acquisition of Assets/Company/Inventory – This means invest your leftover profits in your business. If there are more profits, then:

• You may take new assets
• You may purchase a new factory
• You may purchase new land where you can set up your factory or purchase a company

2. Loan Repayment – Repay the loan so that you interest payment can be waived off or reduced to minimal.

3. Invest in Team, Technology, and Training – Sometimes you sales run faster than your operations. It means as per your sales, your supply is not ready. Market liked your product or service and has more demand than supply.

• If you don't have time to invest money, then-
• Make yourself stable and robust with it.

Invest in team, technology and hire good manpower so that technology automates and train your team so that they can perform better.

4. Share dividend to yourself – This means that the profit you have generated, you can dividend it to yourself that is share in profit.

In case, you are not able to decide any of the above options, then park your profits in Debt Fund. Nobody ever plays gamble with the company’s money. You will never purchase any stock or anything which is not in your control. Put your money in mutual funds where you will get a return of 6-8%.

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#3 Cash in Advance

1. Payment to suppliers – Clear all the payment of your suppliers because if you will pay them on time or in advance, then-

• They will act as word of mouth in the market about the company that you give money on time and a good reputation for your company builds in the market.
• More suppliers would like to work with you due to whom you can get raw material at competitive rates and prices.

2. Purchase Fresh Inventory – You may purchase fresh inventory because as soon as your sale happens and money comes through the service, which is yet to be given, then you might purchase new inventory and make your sales faster.

3. Pay Overdraft Limit/Cash Credit Limit – When you are doing business, banks give you an overdraft limit, so pay your all overdraft to the bank. Banks will have an image that money comes to you timely and you pay timely to the bank so they will develop confidence in you and will go for long term relationship with you.

#4 Deferred Payments

• Purchase Fresh Inventory – It means you set the raw material by getting the credit of 60 days, 90 days, etc.

• Pay Old Suppliers – Pay and clear the credit of your old suppliers.

• Pay Overdraft Limit – If you have time then pay all your overdrafts so that you are relieved I from the payment of interest. Always sit with your Chartered Accountant and find why that money has come. Is that money revenue or any liability.

#5 Raising Funds

If you have raised money from investors or banks then-

• Invest in your business – Purchase assets, any company, or any inventory by which your turnover can increase.

• Repay Costly loans – Pay all your loans so that all your raised funds immediately gets deployed.

• Purchase Bulk Inventory – Suppose by purchasing the inventory in bulk, your purchase price reduces by 10%, then use it in reducing inventory price.

• Invest in your company – Improve your technology, training, and your team.

Always invest your money raised from any banks or investors in the above means.

See how your funds are coming. Make the checklist. Based on your checklist decide where you have to deploy the funds. Sit with your team and see where the cash flow is coming and where it is deployed.

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