One of the most common cash flow management mistakes that small businesses make is inadequately investing their cash reserves.
Vaughan David, CEO of Business Cash Investments at FNB, says managing your SME business’ cash flow is not just about maintaining revenue levels and ensuring that money owed is collected timeously, it is also about managing your cash reserves and balancing the risk of any investments you might make.
He shares three important factors that SMEs should consider when investing cash reserves:
- Diversifying – a key principle of investing is limiting risks by spreading investments across different instruments and products in order to cater for short and long-term business needs.
- Short-term investments – determine what percentage of your cash reserves you require instant access to, for unexpected expenses or cash flow management and then deposit those reserves into an account which can give you instant or quick access to your savings. For example, FNB is seeing a significant increase in the number of small businesses who are carefully managing their cash flow using its unique investment product, the ’48 Hour Cash Accelerator’ that offers great returns coupled with quick access.
“This not only allows SMEs the flexibility to access their invested cash reserves in a reasonable amount of time, but further ensures that they get returns that curb the effects of inflation,” says David.
- Long-term investments – it is recommended that a portion of the reserves are invested for the long-term, for capital expenditure, planned repairs or future expenses etc. There are a variety of investment accounts that businesses can opt for depending on their unique needs.
“Given the number of investment products available in the market, investing reserves can often be confusing for entrepreneurs. Therefore, it is advisable to seek the assistance of a banker who can conduct a holistic assessment of the business and make recommendations,” concludes David.