Cash vs. Growth: The Business Owner's Ultimate Dilemma
"I've got a quarter million dollars in cash, but I need $100,000 expansion. Where's the line?"
The question came from Kevin during a recent coaching session. It seems I hear versions of it every week. Successful business owners reach a point where they're caught between two powerful forces: the security of cash reserves and the opportunity to grow.
It's a common business dilemma.
They either hoard cash and miss growth opportunities, or they spend aggressively and leave themselves vulnerable to the next economic storm. Both approaches can kill a business.
The Cash Hoarding Trap
Some business owners become addicted to cash accumulation. They see that growing bank balance as security, as proof they're winning. They'll sacrifice growth, miss opportunities, and watch competitors pass them by—all to preserve cash that's earning very little to nothing.
Money sitting in a bank account is one of the least productive assets you can own. Cash is a tool, not a trophy. Its value comes from what it enables you to do, not from how much you accumulate.
The Growth-at-All-Costs Mistake
On the flip side, I see aggressive business owners who spend every dollar they make on growth. New equipment, expanded facilities, additional inventory, more staff—they're always investing in the next opportunity.
These owners sleep poorly. Every month is a scramble to make payroll, pay suppliers, and cover expenses. One missed payment from a large customer or one unexpected expense can trigger a cash crisis.
They're building impressive businesses on a foundation of financial sand.
The Framework That Changes Everything
The dilemma obviously calls for compromise—an appropriate cash reserve and a method to determine how much to spend. Here's how I help clients navigate this dilemma: Use objective financial metrics to guide subjective business decisions.
Kevin's situation was perfect for this approach. He had $236,000 in current assets and $139,000 in current liabilities, giving him a current ratio of 1.7. That means he has $1.70 for every $1 of near-term liabilities. Even after spending $100,000 on his warehouse expansion, his ratio would still be above my minimum threshold of 1.4.
The numbers told us he could afford the growth investment without compromising his financial stability.
The Three-Question Filter
Before any major expenditure, I have clients answer three questions:
Will this maintain our current ratio above 1.4? This ensures you preserve financial flexibility.
What specific result will this investment produce? You need concrete expectations, not vague hopes about "growth."
How will we measure success? If you can't measure it, you can't manage it.
Kevin's warehouse passed all three tests. His ratio stayed healthy, he could quantify the operational benefits (more efficient storage, ability to handle larger jobs), and he could measure success through improved workflow and capacity utilization.
Every dollar sitting in a low-interest savings account is
The Hidden Cost of Too Much Cash
Here's the lesson many of us miss: Excess cash has a cost. Every dollar sitting in a low-interest savings account is a dollar not working to grow your business.
If Kevin could generate a 15% return on his warehouse investment through improved efficiency and capacity, leaving that $100,000 in a 1% savings account rather than building the addition was costing him $14,000 per year in opportunity cost.
The safest move isn't always the smartest move.
When Cash Wins
Sometimes preserving cash is the right answer. If your current ratio is below 1.2, if you can't articulate the specific benefit of the investment, or if you can't measure success, then cash preservation wins.
Many businesses fail because owners made emotional growth decisions during financially vulnerable periods. Your balance sheet will tell you when you can afford to be aggressive and when you need to be conservative.
The Middle Path
The best business owners I work with find the middle path. They maintain adequate reserves for stability while investing strategically in growth. They use financial metrics to guide decisions rather than emotions or gut feelings.
They understand that building a valuable business requires both security and growth—and they use objective criteria to balance these competing demands.
The One Thing You Must Do Today
Calculate your current ratio by dividing current assets by current liabilities (both numbers are easy to find on your balance sheet). If the ratio is above 1.4, you have room for strategic investments. If below 1.2, focus on building reserves before pursuing growth.
This single calculation will help you make better decisions about every dollar you keep and every dollar you spend.
Stop making cash-versus-growth decisions based on emotion. Start making them based on financial reality. Your business—and your sleep—will improve dramatically.
About the Author
Martin Holland is a seasoned business coach and founder of Anneal Business Coaching. With over 45 years of experience and a background owning seven businesses, Martin helps entrepreneurs build clarity, control, and profitability into their companies. He is the author of The Profit Problem: They Say I Make Money... So Why Don't I Have Any? and co-host of The Cashflow Contractor podcast.
Content Transparency
This article is based on real coaching sessions and actual client conversations. It has been drafted and structured using digital tools to improve clarity and accessibility. All content has been reviewed and edited by Martin Holland for accuracy and completeness.
Learn More & Connect
Website: annealbc.com
Book: theprofitproblem.com
Podcast: thecashflowcontractor.com
Contact: martin@annealbc.com