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How can small businesses effectively manage cash in uncertain times?



Head of Business Cash Solutions at Investec Bank, Sean Jackson, says in such an environment, cash-flow becomes critical to ensure business survival, and even more for small, medium and micro-sized enterprises (SMMEs) than for larger businesses.

Feeling the pressure

In the current business climate, two aspects stand out. One, being a company in a favourable cash position month-on-month, where it is still making good revenue, but not re-investing that cash. Due to the uncertainty, it tends to “sit” on surplus cash, waiting to see what happens in the market, before making any investment decisions.

The other aspect we see is that some companies who historically have had good cash reserves are feeling the pressure of the state of the economy and are now drawing down on them. Either way, the ability to maximise returns on reserves is a critical requirement, particularly for small businesses.

In uncertain times there tends to be a focus on cutting costs, as opposed to maximising operational cash, which in fact can enhance the bottom-line.

What could business owners do under the circumstances?

“Investing that cash with a bank that offers great returns and thereby enhancing passive income, would be a very good option, with virtually no market risk. The capital is guaranteed as opposed to investing in equities where there is always a certain amount of risk. They could also look to a bank that can provide them with professional and personalised service – for example, a private banker,” advises Jackson.

He says in a small business in which the owner is often doing sales, operations, marketing and finance, a personalised banking service can free up time and therefore assist the owner to do what they do best – managing and growing their businesses.

Rate transparency

Business-owners must understand how their banks quote on various cash investment rates: an example – nominal and effective rates; one bank might quote an annual effective rate, another a monthly rate; yet another might quote a specific yield.

Companies could ask their bank to quote on all of them, so they are able to compare like for like. It is also critical to understand how the product will meet business-owners’ liquidity requirements, and determine the appropriate period of the investment.

It is important to be able to access cash when needed, while at the same time maximising returns. This means finding a balance between the short and medium terms.

Removing the hassle factor

Time remains a critical factor in any business. A bank should make cash investments as simple as possible.

“These days, with online banking services, it should not be necessary for a business owner to go to a bank branch in person. Personalised service with the support of online banking, helps to remove the hassle factor. A dedicated banker will be able to guide a client through the process,” says Jackson.

He says when business-owners are looking for a bank to “park” their cash investments, the service component should be the very first thing on their minds.


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