Can a Business have too Much Cash?
For most business owners cash is king, it is the lubricant for the engine of business.
Having lots of cash is the aim of a business, however, having too much cash can be problematical.
The cash in the business is clearly an asset but if there is no earmarked use of the cash, then this may impact :
- business property relief for inheritance tax,
- entrepreneurs’ relief for capital gains tax.
So, although the cash accumulated may give you a feel good feeling now, it may not if it is regarded as an excepted asset.
Cash reserves
Some businesses like to retain a high level of cash in case there is an economic downturn or uncertainty (like now).
Unless there is evidence showing the cash is being held for a specific identifiable future purpose, it is likely to be treated as an excepted asset.
Like any major factor with running a business, it is best to evidence your reasons in your Director Board Minutes.
Worth a discussion?
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