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Hard times ahead for SA’s SMEs

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South Africa’s low growth economy presents 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.
Managing investment risk while retaining access to the funds when they are needed, are also important considerations.
Ancley Jacobs, CEO of 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, he acknowledges that liquidity is a priority for most SMEs and suggests that it should not come at the expense of growth. This means 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 says. “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.