Fleet Management News & Business Info | Commercial Carrier Journal
Issue link: http://read.dmtmag.com/i/510235
COMMERCIAL CARRIER JOURNAL | MAY 2015 81 cash a few months ahead, such as income tax payments. The returns are small – only 3 to 4 percent – but you have little concern over losing any value on your investment. Another bank product is the repurchase agreement. Banks keep an inventory of U.S. Treasury securi- ties and can sell them to you with the agreement to repurchase them in a week or a month. You might invest $99,600 in such securities, and the bank agrees upfront to buy them back in 30 days for $100,000. Returns may be only in the range of 3 to 5 percent. Using discounts Taking purchase discounts can pay off handsomely. Scour your supplier and vendor statements to see if they offer early payment discounts. Even a 1 percent discount for payment in 10 days with net due in 30 days will offer a fantastic – and risk-free – return. If, for example, you owe $10,000 but can pay $9,900 if you pay within 10 days, you earn $100 for paying early. In effect, you are earning 18 percent interest on your money for 20 days. If anyone offers 2/10 net 30, take the discount. That's equal to a 36 percent annual interest rate. It may even make sense to take an advance on your line of credit at 10 percent to earn the discount. Longer-term options If you have exhausted short-term strategies and still have a surplus, you might investigate other options. A good starting place might be an investment policy statement. Get your banker or investment adviser to help prepare one. A policy statement is a brief list- ing of what your investment time frame might be and a listing of what types of investments are appropri- ate for this time frame and for your company. Most importantly, a policy outlines investments that are not appropriate. It can be a written guide for your internal managers and out- side investment advisers. A fundamental principle of invest- ing is that to get higher rewards, you must take more risks. If you are considering bonds or equities, consult a CPA, certified financial planner or investment adviser that work on a fee-only basis. Fee-only advisers charge by the size of the portfolio, so their reward depends on increasing your portfo- lio, not getting you to buy something because it pays a commission. In summary To invest excess funds effectively, you must know the period dur- ing which your cash is available. Different investments are appropri- ate for different time periods. And there may be great investments inside your own business – in the form of reducing your debt or taking discount opportunities. COMMERCIAL CARRIER UNIVERSITY Produced by: In cooperation with: Commercial Carrier University is an educational initiative for owners and managers of trucking companies that are held at select Truckload Carriers Association events. We're certain you will find this program a valuable resource in managing your business more easily and more profitably. CCU's goal is to provide you with an in-depth road map for success through clear advice on basic and advanced business practices. CCU Titles Available: &w to Evaluate Life Cycle Costs &w to Manage Cashflow &w To Plan For Succession &w to Use Financial Statements &w To Write A Business Plan Visit www.commercialcarrieruniversity.com for more information. CCU manuals are available on USB drives and can be purchased online through eTruckerStore.com.