When faced with a cash surplus, it is necessary to act quickly, usually combining several responses.
Cash management aims to ensure that the company can permanently meet its obligations. However, it is necessary to seek a balance that does not lead to having cash surpluses that could reduce the profitability of your business.
In any case, when there is a cash surplus, you must act. Below, we will evaluate different options on what a company can do when it has excess liquidity .
Start of marked textSHARE! Is having extra money always a good thing? For companies, it can be a burden on their profitability.End of marked text
1) Learn and prevent future cash surpluses
Cash flows have certain random components . Occasionally, in a given period, we may have received much more than expected or received payments that were clearly below forecasts. But statistics tell us that these situations will be very rare.
Cash management is one of the most important functions of any company, both when there is a lack of cash and when there is a surplus of cash.
Today, we have specialized software that allows you to make better forecasts and simpler and more practical controls. This is the case of Sage XRT Treasury Advanced , a solution that provides you, in a flexible and efficient way, with all the functionality and visibility you need to make the most of your liquidity.
Whether you use one tool or another, never forget these two keys :
When making forecasts, you should always nursing homes email list consider what could happen in a worst-case scenario . Think about everything that could go wrong at some point.
We will not be able to estimate any of this if we do not know our company thoroughly : the payment deadline from our clients, who we need to pursue to collect , fixed office payments, payments related to the company's activity, payrolls , tax periods , etc.
2) Mattress for unforeseen events
You can keep a cushion or reserve for unforeseen events . With this, since you have had a cash surplus, you can take advantage of it to place the working capital at a comfortable figure for the near future. In any case, do not overdo it, since too much liquidity is a burden on the profitability of the company.
You should also pay attention to qualitative aspects . Although, given your circumstances, it would be in your interest to increase the working capital , you may eventually be interested in having other types of current assets take center stage. Studying ratios can help you find the optimal point for your company at any given time.
It will be useful to compare different initiatives to transfer this cash surplus to greater working capital. You will need to make projections that, in different states of the environment, will guide you on how aspects such as:
Managing your inventories .
Bank accounts and the use of financing and other banking services.
Tax debts and credits.
Credits to customers and other debtors and the behavior of payment terms and late payments.
Commitments to suppliers and other creditors.
Short-term financial investments.
The existence of fixed assets that you intend to liquidate.
Credits and debts to partners, group companies and other related parties.
The existence of accruals and provisions.
3) Dividends
If done right, paying a slightly higher dividend can provide advantages:
Internally, you can reinforce the confidence of partners , who need to see in their pockets that the business is making money.
Externally, you provide evidence that the accounting is credible and that accounting profits translate into cash flows .
However, qualitative aspects must be taken into account here . It is important to have the decision well presented , with a well-reasoned report . An excessive dividend can be taken as an indication that, given the lack of projects and expectations, the best option is to withdraw resources from the company.
