SA’s low growth economy presents cashflow challenges for SMEs

Ancley Jacobs, CEO of FNB Cash Investments.

South Africa’s low growth economy presents small and medium enterprises 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. Managing investment risk while retaining access to the funds when they are needed, are also important considerations.

Ancley Jacobs, CEO FNB Cash Investments, points out that most SMEs have 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 explains.

Secondly, Jacobs acknowledges that liquidity is a priority for most SMEs. He suggests that it should not come at the expense of growth meaning cash should be “parked” in an interest bearing savings or cash investment account that offers 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”, says Jacobs.

“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,” Jacobs explains, “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 can be well suited as a way of growing cash available to the business that have a clear view of their timeline for future cash needs, which is why, for the SME that is unsure about exactly when it will need to access cash. Jacobs recommends finding a solution that offers quick access at no cost.

He uses the recently launched FNB 48 Hour Cash Accelerator savings solutions as an example of a business savings solution designed specifically to balance the needs of having quick access to savings while enjoying healthy growth. “The solution was developed with the specific cashflow and growth needs of businesses in mind and, as such, it combines a very competitive interest rate with an appealing 48-hour notice period to access cash invested, coupled with the assurance that the capital and quoted returns are fully guaranteed.”

“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 states that, “apart from the benefit of being able to access your cash quickly, it will also actually 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 offer a balance between the risk, growth and access that their business, can be comfortable with,” Jacobs concludes.