Excess cash on the balance sheet: a framework for owners

A profitable company accumulates cash. After a few good years, the balance can grow far beyond what the business needs to operate. Many owners leave it sitting in a low yield account because no one has helped them decide what else to do with it.

This is a framework for that decision. It is not investment advice. It is a way to organize the conversation with your CPA, your attorney, and your advisors.

Step 1: Decide what the business needs

Before anything else, set the cash the company should always keep. Most owners consider:

• Operating needs: payroll, payables, and seasonal swings.
• A reserve: a cushion for a bad quarter, often expressed as months of fixed costs.
• Known commitments: equipment, expansion, tax payments, and debt maturities in the next 12 to 24 months.

Everything above that number is excess. Write the number down. It turns a vague feeling into a decision.

Step 2: Ask what the excess is for

Excess cash can serve the business or the owners:

• Grow the business: new locations, equipment, hiring, or acquisitions.
• Reduce risk: pay down expensive debt or fund a larger reserve.
• Own the real estate: buy the building the business operates in, or one it will need.
• Diversify the owners: distribute cash so owners can build wealth outside the company, with tax advice.

The right answer often combines several of these.

Step 3: Understand what idle cash costs

Cash that earns less than inflation loses purchasing power every year. Our Idle Cash Calculator shows that cost in dollars for your balance. The point is not to chase yield. It is to make keeping cash a decision rather than a default.

Step 4: Match the money to its job

Money that may be needed soon should stay liquid. Money that will not be needed for years can be considered for longer term uses, such as real estate the business occupies or other real assets. Each choice trades liquidity, risk, and control against return, and the right balance is specific to each owner.

How we help

We help owners and their CPAs build a written capital strategy: how much to keep, how to fund growth, and how to think about the rest. Where the plan calls for financing or capital partners, we can connect you with them. Schedule a conversation.

Thomas Capital Holdings is not a registered investment adviser and does not provide investment advice or recommend securities. Consult your own advisors about your situation.