Lots of 'Working capital' or Cash in a business

[aceparts]

Lots of companies leave lots of cash in business accounts. What's the purpose of this? Am I missing something?

[jammy_basturd]

Surely it's so they have lots of 'liquidity' should they hit hard times?

[birdcage]

Also, if someone buys the company from you, you can 'sell' them the cash and take it out at a much better tax rate

[Don]

It's for a number of reasons:

(1) Paying the corporation tax bill when it arrives
(2) Not needing an overdraft with the bank

Because if you have an overdraft with the bank then they can decide to stop lending at anytime.

If they do decide to recall the loan/overdraft then at that point the business will be insolvent overnight.

If you want to run the business yourself, rather than as a junior member of the team run by your bank manager you keep working capital in your account.

[ringram]

Cash as capital increases the value of the business quite a bit too as per above.
Capital gains is 18% and if its your first business you are allowed up to £1M at 10% IIRC.
Compare that with your marginal rate of income and you will see its quite attractive to let it sit there if there is no better return elsewhere.
Currently loads of companies are sitting on cash piles. Some say to weather the second dip, others to service and repay debt etc

[DennisCooper]

Cash is King


An absolutley fantastic place for a company to be in.. having relatively largish amounts of cash in the bank.....

Cheers, Dennis!