Unnecessary Interest Payments
One of the most significant adverse effects of holding excess cash is paying more interest on debt than is necessary.
If you have stockpiles of cash and outstanding, high-interest debt balances, you have too much cash on hand.
What can you do with excess cash in a business?
If your business has extra cash, there are several ways you may want to invest it.
- Establish Cash Reserves.
- Invest in Your Business.
- Maximize Capital Expenditures.
- Buy Another Business.
- Set Up Retirement Accounts.
8 Feb 2017
How much cash should a company hold?
Conventional wisdom holds that a business should have liquid assets (cash in bank accounts and very liquid investments) equal to three to six months of operating expenses. That’s a nice rule of thumb, but I like to separate cash into a monthly operating account and a contingency fund.22 Jan 2014
What are the disadvantages of having a large cash balance?
The only real disadvantage to a large cash balance is the fact that money in the bank limits a business’s ability to grow. Instead of adding to a large cash balance, money can go toward increasing payroll to hire more and better workers, toward paying down debt or into investments that will pay off in the future.
What is excess cash balance?
An additional amount of cash beyond what a company normally needs to have on hand. As a general guideline, a company is often said to have excess cash if its cash on hand equals more than 20% of its revenue.