What To Do When Your Business Has Too Much Cash

Claire Hancott
3 days ago
6 min read

Most content about business cash flow is about not having enough of it. And for good reason. Running out of cash is an emergency. Businesses that watch it happen describe it like a heart attack, arriving faster than expected and leaving no room to think clearly.

But there is a quieter problem on the other side of the spectrum that gets much less attention. Businesses that are sitting on significant cash reserves, sometimes a million pounds or more, without a deliberate plan for what to do with it.

This is more common than people expect. Particularly in established businesses that have been trading for fifteen to twenty years, and in second-generation businesses where profits have been accumulating across two sets of hands. The cash builds up, the owners know it is there, and somewhere along the way nobody made a conscious decision about what to do with it. It just sits.

That is not a crisis. But it is a missed opportunity, and the size of the opportunity is often larger than business owners realise.

Listen to the podcast episode that inspired this post:

Episode 68 - Too Much Cash? The 6 Things Smart Business Owners Do Next

Why The Cash Accumulates In The First Place

The most common reason is tax. Once a business owner and their family members have maximised their income to around a hundred thousand pounds each, plus pension contributions and the benefits that run through the business, additional withdrawals start attracting marginal tax rates of up to sixty percent. At that point, leaving money in the business starts to feel like the more rational choice. The lifestyle is comfortable. There is not an obvious reason to pay sixty pence in the pound to take out money that is not immediately needed.

Some businesses also hold cash for legitimate operational reasons. Businesses operating under an operator's licence, such as HGV fleet operators, may be required by their licence to carry a minimum cash balance. FCA-regulated businesses often have minimum capital requirements. Some businesses choose to work with smaller suppliers who cannot extend long credit terms, and hold more cash to fund that preference while still paying promptly.

And then there are the business owners who simply find it hard to sleep at night without a certain floor in the bank. That is a personal decision, and a valid one, as long as it is a deliberate choice rather than just a default.

The question to ask is simple: is the cash in my account there for a specific reason I have consciously decided on, or has it just accumulated because I have not thought hard enough about what else to do with it?

1. Hold Cash Deliberately, Not By Default

Before deploying cash elsewhere, it is worth making sure that the amount you are keeping is actually the right amount rather than just whatever has built up.

Work out what your business genuinely needs as a buffer, factoring in your industry, your payment terms, your growth stage, and your own risk tolerance. Then make a conscious decision about that number. Write it down. Know why you are holding it. Everything above that threshold is available to work harder.

2. Buy Your Commercial Premises

If your business rents or leases the space it operates from, buying that property is often one of the most straightforward uses of excess cash. You convert a monthly cost into a mortgage payment, with the key difference that the money is now building equity in an asset rather than disappearing as an expense.

In the current environment, mortgage payments on a commercial property are often similar to the rental payments they replace. The cash flow impact is broadly neutral, but the balance sheet impact is significant. You are building an asset rather than funding someone else's.

Before going down this route, take proper tax advice on the structure. Whether to buy in the trading company, in a separate property company, or personally makes a meaningful difference to the tax outcome and is worth getting right before you act.

3. Pay Down Business Debt

If the business is carrying debt, paying it down with excess cash improves cash flow by removing interest payments and strengthens the balance sheet for future financing needs.

The decision is not always straightforward though. The right question is whether the return on keeping that cash deployed in the business, or in an asset, is higher than the interest rate you are paying on the debt. If the answer is yes, pay down debt last. If the debt is high interest, start there.

One practical point worth noting is that paying down debt is not necessarily permanent. If you later decide you want that cash back for a different use, refinancing or taking asset finance is usually achievable relatively quickly. You are not closing a door, you are parking the cash in a more efficient place.

4. Acquire Another Business

There is a well-worn saying in the business world: when you are sitting on a lot of cash, buy or be bought. Cash-rich businesses are attractive acquisition targets because they represent deployable capital. The most proactive response is to use that capital yourself rather than wait for someone else to see the opportunity.

Acquisitions do not always require the full purchase price in cash. Most deals are structured with a combination of cash, vendor finance, and deferred payments. But having cash behind you matters because there are always things you did not anticipate. Integration costs, team changes, systems work. The buffer makes the difference between a smooth transition and a stressful one.

One thing to plan for is that going from running one business to overseeing two usually requires more management capacity in the original business. Budgeting some of the cash for strengthening your existing team before completing an acquisition is often money well spent.

5. Invest In Your Own Business

This is the option that is most often underused, and in many cases the one with the highest potential return.

Opening a new location. Entering a new market. Running a significant marketing push. Building out the management team. Developing a new product line. Experimenting with a new model. These are all things that require capital and that many business owners have never done at scale because they built the business by bootstrapping and find it genuinely uncomfortable to put six figures into the profit and loss in a single year.

There is a particularly common situation worth naming: a business owner sitting on a million pounds in the bank, running ragged, doing too much themselves, and not investing in the senior people who would free them up and accelerate growth. The cash is there. The need is clear. But the habit of keeping it in the bank is so ingrained that the investment never gets made.

The most ambitious version of this is to set aside a deliberate experimentation budget. A sum of money allocated specifically to testing new things, measuring what happens, and using the results to inform what comes next. The businesses that build this habit compound their advantage over time in a way that cannot easily be replicated by competitors starting from scratch.

6. Make Investments Outside The Business

If the business has genuinely exhausted its own internal growth opportunities, the cash can be moved into more traditional investment vehicles. Commercial property for rental income. Residential buy-to-let. Stocks and shares. Other assets.

What many business owners do not realise is that this does not necessarily require withdrawing the money and paying personal tax on it first. With the right structure, typically involving a holding company, it is often possible to move capital into investment vehicles in a more tax-efficient way. The specifics depend on individual circumstances and require proper advice, but the principle is worth knowing: the money does not have to leave the corporate structure to start working harder.

The important framing here is that money sitting in a business bank account earning modest interest is not working. The ideal bank balance in a world where every decision is perfectly optimised would be zero, because cash is a resource in the same way that a team member is a resource. You would not pay someone to sit in the corner just in case you got busy. The same logic applies to cash.

In the real world, most businesses need a buffer and most owners need the peace of mind that comes with it. But keeping excess cash beyond a deliberate and reasoned threshold is a quiet cost that accumulates year by year.

Not sure how much cash your business actually needs to hold, or what to do with what is above that level? Profit Cash Growth works with established business owners to make deliberate decisions about capital, strategy, and financial structure. Get in touch to start the conversation.