Too many SMEs saving for a rainy day
BIRMINGHAM’S SMEs are sitting on cash and not investing it because of the uncertain economic climate, according to new research.
A study carried out for Venture Finance shows almost half (44%) of businesses are holding on to investable cash not needed in their day-to-day operations.
Guy Walsh, Business Development Manager, for Venture Finance in Birmingham, said: “In the aftermath of economic crisis, business owners appear to be building up their war chests and waiting for clearer economic skies. But this could become a vicious cycle, sending everyone back into the doldrums.
“If SMEs can shake off this cautious mood and grasp the increasing growth opportunities available, it could be a great boost for them and for the UK economy.”
The new study is based on research amongst 500 SME business owners and directors.
It concludes many SMEs are keeping cash stored to protect themselves from future problems rather than investing in the day-to-day running of the business. Those holding on to investable cash are keeping an average of £190k in the bank.
Half (50%) of firms are holding on to cash as a buffer in case of future financial difficulty, rather than investing in growth.
“Prudence is obviously important in uncertain times, but SMEs could be taking this too far. Businesses have to ensure they aren’t watching prime business opportunities to expand or even acquire pass them by. While we’ve seen tentative organic growth amongst our customers, it’s important that SMEs ready themselves to seek-out and grab hold of growth when it comes knocking,” added Mr Walsh.
Despite signs of recovery, SMEs have been cowed by the recession and remain stuck in a cautious mindset, not considering growth, said the finance firm.
The majority (80%) of those surveyed admitted a lack of confidence in the economy, with 54% not optimistic about the current business environment.
Almost half (48%) believe with the economy so uncertain, growth is too risky. As a result of reduced confidence, over a third (36%) of UK SMEs have no plans to grow and almost a third (30%) are not planning to invest in growth within the next 12 months.
“Many SMEs appear to be sitting back and waiting for a brighter economic outlook which might not come if they don’t take decisive action.
“The credit crisis has been a big knock to the British entrepreneurial spirit. A shift out of the recession mindset and an investment gear change could be just what’s needed for SMEs to steal a march on their competition and look towards growth,” said Mr Walsh.
