Top 10 Financial Concepts for Business Owners: #5 Get Your Cash Working as Hard as You

Many companies need to have a large amount of cash on hand, which is a very prudent business decision. Businesses can be cyclical and revenue can be negatively affected by many external factors. Emergencies can impinge on cash flow, and a business needs to be prepared with a healthy working capital amount.

However, allowing that cash to sit in the bank without earning a return is not necessary. It is possible and preferable to put that cash to work, earning a return. Rather than just sitting in a chequing account earning very little, there are many investment options that give a return without giving up the accessibility for the company.

While earning a return on working capital is important, tax is also a consideration. In Canada, passive interest income earned in a corporation is taxed at over 50%. In addition, passive income can affect a corporation’s ability to access the Small Business Tax level. It is very important to earn the best after-tax income on your hard-earned savings.

Due to the conservative nature of working capital, the starting point for evaluating investment options is Cash Management. We have a short-list of tax-efficient cash management investment options with a focus on tax-efficient returns, including cash management tools from guaranteed investments to one or two steps above on the risk spectrum.

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