What SMEs should consider when managing reserves

THE COUNTRY’S low-growth economy has presented small and medium-sized enterprises (SMEs) with a number of challenges, not least of which is how to balance the need to grow and preserve their cash reserves for future use.

Managing investment risk, while retaining access to funds when they are needed, is also an important consideration.

Ancley Jacobs, the chief executive of First National Bank cash investments, said this week that most SMEs have three main considerations when managing and saving their cash reserves. “The primary consideration for any small or medium business is managing investment risk by ensuring that cash on hand is invested where it is safe and the capital is fully guaranteed,” Jacobs said.

Jacobs said liquidity was also a priority for most SMEs. He suggested that it should not come at the expense of growth, which means cash should be “parked” in an interest-bearing savings or cash investment account that offered growth to curb the effects of inflation, while providing instant or quick access to savings.

“Apart from the need to have cash on hand in savings and cash investments with instant or quick access to money, SMEs need to be able to access cash invested over the medium and longer term for regular planned expenses, such as tax payments, and staff costs, such as bonuses, as well as large future expenses, such as assets or growth projects,” Jacobs said.

“Typically, when it comes to cash savings, the solutions offered by banks are built around a balance between ease of access and term of savings, so a business that is prepared to agree to long lead times when it comes to accessing its cash will typically enjoy a higher growth rate.”

Jacobs recommended finding a solution that offered quick access at no cost.

“Given that a significant reason for putting your cash into a savings account is to help grow the money during the times that you don’t need it, earning returns that keep up with inflation is important. Apart from the benefit of being able to access your cash quickly, it will also be worth more than when it was deposited.

“Owners of these businesses therefore need to make absolutely sure that they fully understand their short-, medium- and long-term cash requirements to ensure that they have an optimised solution that offers a balance between the risk, growth and access that their business, can be comfortable with,” Jacobs said.