Money safer in the bank say small business owners

YORKSHIRE’S small business owners are choosing to hold onto their cash as concerns over the UK’s economic future grow.

According to new research by Bank of Scotland Business Banking, three quarters of small to medium sized enterprises (SMEs) across the region are holding off on making any immediate investment decisions due to the continuing effects of the credit crunch and cost increases.

Over the next 12 months, four in ten (44%) said they planned to put aside money for future investment in the business while nearly half (48%) plan to put aside money in savings to earn interest.

One third (33%) of small business owners were planning to put aside money for insurance against hard times and worsening in economic conditions.

However, despite expressing an intention to reign in their spending small business owners are still investing more back in to their businesses than they are saving.

More than a third (35%) are investing more back into their business than they are saving while one in five (21%) is saving and investing in equal amounts.

Less than one in ten (9%) is saving more each month that they are investing back into the business. More than a third (35%) of small business owners are neither saving nor investing.

The survey found that the average saving per month for SMEs with deposit or savings accounts is £1,500 per month.

Peter Wood, head of strategy and products at Bank of Scotland Business Banking said:

“In a more cautious economic climate, where saving is prioritised over investment, it’s vital that SMEs find the best home for their surplus cash.

“Making the right investment and savings decisions can make a huge difference to the bottom line of any business, particularly SMEs where the line between profit and loss can be marginal.”

According to the Institute of Chartered Accountants in England and Wales (ICAEW), cashflow and financing should be a top priority and is number one in its top ten tips devised to help businesses safeguard their finances.

They are as follows:

1. Put cashflow and financing on the agenda for every management meeting.

2. Regularly update cashflow forecasts.

3. If there is a conflict between profitability and cashflow take the cashflow option.

4. If you have a term loan or overdraft be aware of any covenants and constantly
monitor how close you are to breaching them.

5. Prepare thoroughly if a review is coming up on any of your financing facilities.

6. If limits might be threatened “think the unthinkable” regarding the sale of assets.

7. Talk to current financiers before you get into difficulties. Otherwise you devalue future forecasts.

8. Make sure that all types and sources of finance have been fully considered.

9. Invest time talking to new sources of finance. You might need them if your current providers prove difficult.

10. If you are “cash rich” draw up a list of ways you could use surplus cash for the longer term benefit of the business.