Are SMEs sitting on a cash mountain?

Research released by the Hampshire Trust Bank recently suggests that British businesses are currently hoarding their money to create a ‘cash buffer’, perhaps in response to continuing concerns about the economy. The average SME is thought to be sitting on an estimated pot of £230,000 in their current accounts.

But with interest rates still at a record low, could such a cash mountain be working harder for these businesses? If your business has an accountant, it might be time to pick their brain about how best to put your money to work.

Open a savings account for your cash

Research carefully to get the best rates available – savings rates will always be better than those available on your current account. If you’re a sole trader, you can use the top personal instant access accounts; if you’re a limited company, you should seek the best-paying business savings (rates depend on access required and amounts deposited).

If you handle a lot of transactions, transfer larger amounts, or need to bank cash, your bank may recommend a designated business current account as well – in which case, make sure you get one which is compatible with accounting software such as Xero.

Consider a savings bond

Speak to your accountant about your cash flow forecast and whether you can afford to purchase a fixed-term business bond or similar which offers better-than-average interest rates. You are committed to investing a sum of cash for a fixed term, but in return you will be able to take advantage of even better interest rates.

Check the tax implications

As well as seeking advice about where to invest cash, don’t forget to ask about the tax implications of any scheme and how they may be minimised. You may find your accountant can also put you in touch with other even more lucrative schemes – make use of some professional financial planning advice before deciding on a scheme.