The Business Is Doing Well. So Why Does Sitting on Cash Feel Wrong?

We were talking with a business owner a while back — doing well and consistently profitable. He'd been accumulating cash in his business account for about three years. Not because he was lazy about it. Because he genuinely didn't know what to do with it.

"I keep waiting to need it for something," he told me. "But nothing's come up, and now there's a lot of it."

That's a more common situation than you'd think. And it's one of those circumstances that can quietly turn into a concern if you don't have a framework for thinking about it.

First... not all cash is the same

Before you do anything, it can help to sort your excess cash into categories. Because educated decisions depend on what job that money needs to do.

Some of it probably needs to stay liquid — available for business opportunities, unexpected expenses, or just operational cushion. Some of it might be earmarked for taxes (a mistake some business owners make is treating pre-tax money like it's fully theirs). And some of it — the truly excess portion — is long-term capital that's just sitting with the possibility of losing purchasing power.

Each of those buckets should be handled differently. Mixing them up is where things may go sideways.

The quiet risk of keeping it all in cash

Cash feels safe. I understand why. It doesn't drop 20% in a market decline. It's there when you need it.

But here's what we've noticed many don't think about: inflation doesn't care that your money is sitting in a savings account. Over 10 years, cash that's earning 1-2% in a business account against 3-4% inflation is losing ground every single year. You're not protecting it — you're slowly watching it erode.

That's not an argument for being reckless with it. It's an argument for being intentional.

Your business is already a concentrated bet

Here's something I say to a lot of business owners: your business is probably the largest single asset you own. Your income depends on it. Your net worth is tied to it. Your time goes into it.

That's a significant concentration of risk in one place.

So when excess cash accumulates inside the business — or gets reinvested back into it — you're doubling down on a position that's already your biggest one. In a lot of cases, a consideration may be to start diversifying outside the business. Not because the business isn't great, but because that's what a balanced financial picture often looks like.

How we typically think about it

When I'm working with a business owner on this, we usually end up building a simple framework: keep what you need for liquidity and operations, hold a buffer for taxes and short-term needs, and then figure out what's truly long-term capital.

That last bucket is what you can invest — whether that's in the market, real estate, retirement accounts, or some combination. The specifics depend on the person. But the framework stays the same.

If you're sitting on more cash than you know what to do with

That's actually a great starting point for a planning conversation. Most of the time, the answer involves some combination of protecting what you have, growing what you don't need immediately, and creating a structure that aligns with your business needs and financial objectives.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals, and other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.