Earning a 2.50% Annual Percentage Yield (APY) on “lazy” cash can offer several advantages for small businesses, providing a boost to their financial health and overall operations. Here’s a breakdown of those benefits. But, first let’s define “lazy” cash. Lazy cash is cash that is kept in a business account because the business owner desires to keep a cash cushion. Most of the time it is not needed but due to uncertainty, it gives the business owner a higher sense of security. Now here are the benefits of investing some of the business owners “lazy” cash:
Increased Revenue and Income
The most direct benefit is the additional income generated from the interest earned. While 2.50% APY might seem modest, it accumulates over time, especially if the business consistently holds a significant amount of “lazy” cash. This extra revenue can contribute to the bottom line and improve overall profitability. Today, the average checking interest rate is 0.07%. Thus, LiaFi’s business account’s 2.50% APY is 35 times higher than 0.07%.
Improved Cash Flow
Yes, 2.50% APY can contribute to a business’s overall cash flow. This extra income can provide a cushion during slower periods or help cover unexpected expenses without needing to dip into core operating funds.
Funding for Small Expenses or Investments
The interest earned can be earmarked to cover minor operational costs, such as office supplies, small software subscriptions, or even team lunches. Alternatively, it could be put towards a small, low-risk investment that further benefits the business.
Opportunity for Reinvestment
While 2.50% APY might not be a massive return, it still provides funds that can be reinvested back into the business. This could include small marketing campaigns, upgrading equipment, or investing in employee training, ultimately contributing to growth.
Financial Buffer and Security
The extra income generated can act as a small financial buffer, providing a sense of security for the business. This can be particularly helpful for navigating economic uncertainties or seasonal fluctuations in revenue.
Potential for Compounding Growth
Over time, the interest earned can itself earn interest, leading to a compounding effect. While the rate is moderate, this compounding can gradually increase the total amount of “lazy” cash available to the business.
Partially Offsetting Inflation
While the inflation rate can sometimes be higher than 2.50% , earning this interest still helps to partially offset the erosion of the purchasing power of the “lazy” cash over time. Without any interest, the value of the money would decrease due to inflation.
Demonstrates Financial Prudence
Actively seeking ways to earn interest on idle cash demonstrates good financial management practices. This can be viewed favorably by stakeholders, including lenders and investors.
Other Important Considerations:
Amount of Idle Cash
The actual benefit of a 2.50% APY will depend on the amount of “lazy” cash the business holds. A small balance will yield a smaller absolute return.
Accessibility of Funds
The terms of the account offering the 2.50% APY is crucial. Small businesses need to ensure the funds remain easily accessible when needed for operational purposes.
Big Corporations Use This Strategy
Since it is well known that midsize and large corporations use this strategy to earn interest on their lazy cash, it only makes similar sense for small businesses to employ the same strategy.
In conclusion, a 2.50% APY on “lazy” cash offers tangible advantages for small businesses, primarily by increasing revenue, improving cash flow, and providing funds for reinvestment or a financial buffer. While it might not be a game-changing return, it’s a smart way to make “lazy” funds work for the business and contribute to its overall financial well-being.
