Have you made all the fixed expenses? Have you made all the variable expenses? Are you still left with excess cash? If yes, then there is no need to worry. There are a number of ways to manage this excess cash flow.
The Ways to Manage Excess Cash:
When managing excess cash, the main emphasis should be on liquidity and capital preservation. Proper utilization of excess cash can be achieved through any of these ways:
Investing the money in liquidity funds: Look for a savings plan that can fetch a handsome return on the investment. For this, you need to keep certain factors in mind like liquidity (the ease with which money can be converted into cash), security (risk involved) and simplicity (the procedure involved should be simple). Of course, you also need to look at the rate of return you are getting on such investments.
The main objective of liquidity funds is to preserve the capital. The second objective is yield generation. Investors can invest large amounts of money and at the same time, they can enjoy high liquidity and safety. For short time periods, this option is better than placing money on deposits.
In the US, the funds market is worth $2 trillion.
Investing in Cash Products: this kind of investment is suitable for those investors who are risk averters. Not only is there little risk, it also offers a lucrative rate of return compared to deposits.
The main aim of such products is also cash preservation. Such products are not beneficial in the short run (one month or less), however, as they may give negative returns.
For those investors who have an investment horizon of more than three years, bonds can provide an attractive level of return. An investor with a larger risk appetite can invest his money either in equities or in hedge fund products.
For any investor, it is necessary to consider factors like investment prospect and risk bearing ability when making decisions regarding cash management.
While allocating cash, the main emphasis remains on liquidity and capital preservation. However, the perspective of the portfolio manager, with respect to the interest rate, also affects investment in different plans. A certain outlook leads to investment in longer-term fixed government and corporate securities. There will be higher allocation of money in Floating Rate Notes or in short-term cash deposits if the portfolio manager sees a weak interest rate on the horizon.
Money, if it remains unutilized, can hamper business growth, so it is essential to manage it efficiently. There are number of financial experts who can assist you in putting your money in the best places. You can also get help from online programs or websites.
Alexander Gordon is a writer for http://www.smallbusinessconsulting.com - The Small Business Consulting Community. Sign-up for the free success steps newsletter and get our booklet valued at $24.95 for free as a special bonus. The newsletter provides daily strategies on starting and significantly growing a business.
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