We spoke with Declan Fouhy, a corporate finance adviser with 18 years working with mid-market Irish businesses, about what companies consistently get wrong when a surplus appears.
Is holding surplus cash actually a problem?
In most cases, yes. A surplus sitting in a current account is not neutral — it is actively losing value relative to inflation and opportunity cost. Businesses treat it as a safety blanket, but it is often just deferred decision-making.
What should companies do instead?
The answer depends on the business cycle stage. A company in growth mode should be stress-testing whether that surplus funds a capacity expansion, a key hire, or a supplier relationship that reduces unit cost. The surplus should have a job.
Declan Fouhy — The worst outcome is a board meeting where everyone agrees the surplus is reassuring. That is not financial management, that is financial avoidance.
Where does the controversy come in?
Most advisers will tell you to build reserves first. I disagree with that as a default. Reserves are appropriate after you have modelled the specific risk scenarios your business actually faces — not before. Blanket reserve-building is a way of avoiding hard allocation decisions.
The businesses that grow through surplus periods are the ones that treat the surplus as a signal, not a reward.