SMEs in a quandary over how to pre­serve their cash re­serves

The Star Early Edition - - BUSINESS NEWS - Sizwe Dlamini

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

The econ­omy shrank by 0.7 per­cent in the first quar­ter of this year on the back of a 0.3 per­cent con­trac­tion in the last quar­ter of last year.

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

An­cley Ja­cobs, FNB cash in­vest­ments chief ex­ec­u­tive, said last week that most SMEs had three main con­sid­er­a­tions to keep in mind when ap­proach­ing the man­age­ment and sav­ing of 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 also ac­knowl­edged that liq­uid­ity was a pri­or­ity for most SMEs. It should not come at the ex­pense of growth, mean­ing cash should be “parked” in an in­ter­est-bear­ing sav­ings or cash in­vest­ment ac­count that of­fered growth to curb the ef­fects of in­fla­tion, while still giv­ing 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 also need to be able to ac­cess cash in­vested over the medium and longer term for reg­u­lar planned fu­ture ex­penses, like 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,” he ex­plained, “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.”

This term-based ap­proach could be well suited as a way of grow­ing cash avail­able to the busi­ness that had a clear view of its time­line for fu­ture cash needs – which is why – for the SME that was un­sure about ex­actly when it would need to ac­cess cash.

“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,” he said.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.