Effective cash management in uncertain times

South African businesses are facing enormous uncertainty. The South African Business Confidence Index of the Bureau of Economic Research (BER) at the University of Stellenbosch reflects this. The BCI hit an all-time low in the second quarter of 2017.[1] Current socio-economic and political uncertainty puts a lot of pressure on business in general, and on SMMEs in particular.

In such an environment, cash-flow becomes critical to ensure business survival, and even more so for SMMEs than for larger businesses. Should a supplier not pay on time, it could have a substantial negative impact - for instance on the ability to pay salaries.

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 maximizing 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.

In a small business where 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 short and medium term.

Removing the hassle factor

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

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.