Finance Leadership & Business Insights
The Costliest Financial Mistake I Witnessed: Cross-Funding Between Group Companies
A real finance leadership lesson on how cross-funding between group companies can damage cash flow, delay employee salaries, weaken profitable businesses, and ultimately threaten long-term sustainability.
Published on 19 July 2026 • 6 min read
Introduction
Over the past 16+ years in finance, I have worked with organizations across multiple industries and witnessed many business decisions that looked reasonable in the short term but created long-term financial damage.
One lesson has remained with me throughout my career: ‘Cash belongs to the business that earned it.’
When management ignores this principle, even profitable businesses can begin to suffer. The experience below is shared without revealing the identity of any organization. The purpose is not to criticize past decisions but to highlight an important financial lesson for business owners, directors, CFOs, and finance professionals.
The Situation
I was responsible for handling the accounts of four group companies operating under a common management.
Each company had its own business model, customers, employees, expenses, and financial obligations.
One company from the hospitality sector was performing reasonably well and generating healthy cash flows.
Another company from the fashion industry was struggling financially. Instead of arranging separate funding for the loss-making business, management began using the cash generated by the profitable company to support the other company.
Initially, it looked like a temporary solution. Unfortunately, temporary decisions often become permanent habits.
The Chain Reaction
As more funds were diverted, the profitable company slowly began facing its own cash shortages.
The first visible impact was employee salaries.
Initially salaries were delayed by around two weeks. Then one month. Then several months.
Employees who had worked sincerely for years suddenly found themselves waiting for their own earnings while the company’s cash was being used elsewhere.
Morale declined.
Productivity reduced.
Good employees started leaving.
Hiring replacements became increasingly difficult.
Eventually, the profitable business itself weakened, while the struggling business never fully recovered.
In the end, one of the companies became financially unviable.
Where Things Went Wrong
The intention may have been to save one business. But the execution created risk for both. Some common mistakes included:
- Treating all group companies as one common cash pool.
- Ignoring the independent financial health of each company.
- Delaying employee salaries to solve unrelated business problems.
- Solving liquidity issues without addressing the root cause.
- Assuming future cash inflows would eventually correct the situation.
None of these decisions improved the underlying business model. They simply transferred financial stress from one company to another.
The Leadership Perspective
One lesson became very clear to me.
A profitable business should never become financially weak simply because it is supporting another business without a structured recovery plan.
Leadership is not only about protecting struggling businesses.
It is equally about protecting healthy businesses from unnecessary financial strain.
Sometimes the most difficult decision is also the most responsible one.
Practical Questions Every Director Should Ask
Before transferring funds between group companies, ask:
✔ Is this legally permissible?
✔ Is proper documentation available?
✔ How will this affect the paying company’s working capital?
✔ Will employee salaries or statutory dues be delayed?
✔ Is there a defined repayment timeline?
✔ Would I make the same decision if these companies had different shareholders?
If any answer is “No,” the decision deserves another review.
Key Takeaways
- Cash flow problems should not be transferred from one business to another without careful planning.
- Delaying employee salaries damages trust far beyond the finance department.
- Healthy businesses deserve protection as much as struggling ones.
- Working capital discipline is one of the strongest indicators of financial leadership.
- Short-term cash solutions should never replace long-term business strategy.
Final Thought
After more than 16 years in finance, I’ve learned that numbers rarely destroy businesses on their own.
Financial decisions do.
Sometimes the biggest risk is not a loss-making company.
It’s allowing a profitable one to slowly lose its financial strength while trying to rescue another.
About the Author
Aniruddha Birje
COST & MANAGEMENT ACCOUNTANT
Aniruddha Birje is a Cost & Management Accountant (CMA) with over 16 years of experience in finance, accounting, taxation, internal controls, audit, and business process improvement. Through AniruddhaBirje.com, he shares practical insights to help finance professionals and business leaders make informed decisions.
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