Excess Cash in Your SME: Put Your Money to Work for You!
September 2026 - Hopefully, your SME has a healthy cash position. This provides the necessary financial breathing room. But leaving a lot of money sitting in a regular business account on a long-term basis also means that potential returns go untapped.
That’s why, as an entrepreneur, it’s a wise move to invest (some of) your excess cash. Which investment options are worth considering? And how do you balance returns with risk, tax implications, and sufficient financial flexibility?
Step 1: First, determine how much cash you can spare
Investing company funds doesn’t start with choosing a stock or fund, but with sound liquidity planning. Money that will soon be needed for payroll, VAT, taxes, suppliers, investments, or unexpected expenses doesn’t belong in a volatile portfolio.
Divide your cash position into three categories:
operating cash: funds for day-to-day operations
safety buffer: a reserve for unexpected setbacks
excess liquidity: funds your company won’t need for several years
The last category, in particular, is suitable for investments. Your investment horizon then determines how much risk is appropriate.
Caution: Money Market and Term Accounts
Not every business owner is willing to accept fluctuations in market prices. For funds that need to remain available in the relatively short term, a term account or money market fund may be a good option.
With a term deposit, the interest rate is fixed in advance and the funds are locked in for an agreed-upon period. A money market fund—also known as a monetary fund—typically invests in short-term financial instruments and offers you more flexibility, but the return is not guaranteed.
These options are particularly suitable for the first tier of an investment strategy: funds that aren’t needed immediately, but that you, as an entrepreneur, also can’t afford to be without for years.
Higher Returns with Bonds
For a medium-term investment horizon, individual bonds or bond funds can be the next step. In this case, the company effectively lends money to governments or companies and receives interest in return.
Bonds are not without risk. Their value can fluctuate when (long-term) market interest rates change, and corporate bonds also carry credit risk. A diversified bond fund can help limit that individual risk.
Are you an entrepreneur looking for a higher return than cash offers, but want less volatility than an equity portfolio provides? Then this could be an interesting intermediate layer.
Long-term horizon? Consider ETFs
If your company has funds that can be set aside for five, ten years, or longer, then equity funds and ETFs are worth considering. A broadly diversified global equity ETF, for example, can provide exposure to hundreds or thousands of companies at once.
The major advantage is diversification: your SME doesn’t have to pick the winners itself. The downside is that stock prices can drop sharply. Such a strategy is therefore only suitable for funds that the company can afford to be without for an extended period.
Balanced funds, which combine stocks and bonds, can also be an alternative if you’re looking for a middle ground.
What about Branch 6 or real estate?
A less traditional option is Branch 6, a life insurance product in which the company is the policyholder. This option can be attractive for certain long-term strategies, but be sure to thoroughly research all costs, terms, and tax treatment beforehand.
Real estate can also be a destination for excess liquidity. This can be done through a direct investment, but also, for example, through certain real estate companies. On the other hand, real estate is significantly less liquid, and the investment requires a longer time horizon.
Think in layers, not in terms of a single product
Your SME doesn’t have to choose just one approach. For example, you can adopt a conservative, balanced, or long-term strategy.
A possible structure:
Conservative: term deposit, money market fund, and short-term bonds.
Balanced: a combination of bonds, balanced funds, and a limited allocation to equity ETFs.
Long-term: primarily broadly diversified equity ETFs, supplemented with bonds.
These are not standard portfolios, but they illustrate how different investment horizons can be combined.
Don’t forget about taxes!
Your company’s investment choices aren’t determined solely by expected returns. Factors such as corporate income tax, withholding tax, transaction costs, and the specific tax treatment of capital gains also play a role. Furthermore, the tax treatment of investments held by a company differs from that of a private investor.
That’s why it’s wise to have a simulation done of the return after taxes and fees before making a major investment. After all, a product with an attractive gross return may turn out to be much less appealing on a net basis.
From Excess Cash to Strategic Capital
Investing on behalf of the company doesn’t have to be a quest for the highest return. The main goal is to put excess cash to work in a targeted way without jeopardizing your company’s financial strength.
A good strategy therefore starts with four questions: How much cash do I need? When do I need it? How much risk can I take on? And what return do I expect after costs and taxes? If you answer these questions first, you can determine much more precisely which investment options are right for your small business.
