A business needs cash to meet its short term and long-term business needs. Business owner needs to make sure that there is enough cash tomeet day to day operations while no funds remain idle. Proper utilization of cash for a small business ensures solvency. Cash that exceeds the cash required for day-to-day operations is surplus cash in businesses. There can be many reasons regarding why your business has surplus funds. You may be receiving large inflows or may be your business needs to make a large purchase in the future for which you have been setting aside funds. 

If a business has too much money lying idle in its current account,then it’s called surplus cash and it also means that this money is not workingas hard as it should. The principal goal of a successful owner is managing assets effectively and to maximize its value. To maximize the efficiency of surplus funds, you may want to consider investing surplus funds. 

Consider the source of the surplus funds to determine whether your cash is truly surplus or not. The source can be – Increase business sales can likely result into a surplus. 

If the cash is from the sale of an asset and you won’t need that cash for buying any new asset, then it also may be a surplus. 

It is also very important to maintain liquidity through cash which means that the business should have the ability to meet all its expenses but excessive cash in your business can turn out to be expensive for the business as it carries an implied cost to your business. This cost is also called an opportunity cost. 

This opportunity cost is in the form of losing out on the interest income that your business could have earned by investing the idle cash in mutual funds or fixed deposits or bonds or even by paying off loans. In adequate cash leads to slow down in production and can also drag the business operations. So, it is very important to maintain an optimal amount of cashbalance.