Do you need an emergency cash pot for your business?

Having an emergency cash pot for your business could help you negotiate cash flow issues and tricky times. But how much should you hold available?

Financial advisers often suggest that having an easy to access pot of emergency cash is critical in our personal lives. Yet the same rules should apply for your business, particularly if you are a small or new company. But worryingly almost one million small firms don’t have any form of emergency fund, according to new research.

The report confirmed that 18% of SMEs have no cash reserves. And for smaller firms, with a turnover under £100,000 that figure climbs to almost 50%. Whilst the poll surveyed 1,000 small business owners, the results suggest that, based on the current 5.5 million SMEs in the UK, an estimated 991,800 SMEs don’t hold emergency funds.

Emergency funds for business

Having an emergency fund, or financial buffer, can be crucial if your business hits a tricky few months. Being able to pay employees and suppliers over the short to medium term can give you the time and space to help your business refocus and turn a corner, as opposed to making knee jerk decisions.

Coping with financial stress

With a lack of cash reserves it’s not a surprise the main challenge for most businesses is financial stress. Some of the key areas of concern for UK businesses currently include:

  • Redundancy – nearly a third of businesses have already made redundancies this year
  • Late payments – half of all businesses have late payments owed
  • Loans and borrowing – just over a quarter of businesses have borrowed money from friends to support their business
  • Business premises – 40% of SMEs reports their most common cost-cutting measure was closing down offices

With these stresses in play, holding an emergency pot becomes more important than ever.

Planning for success

Whilst some of this research paints a bit of a bleak picture, thankfully positivity in the small business community is high. 78% of businesses expect to be profitable and experience a growth in revenue this year. Yet it’s different for different sizes of businesses – those with turnovers under £100,000 are less confident, and just over a third don’t predict they’ll see growth in terms of revenue and profitability in 2024.

As always carefully planning of any aspect of your business accounts is critical, and working closely with your accountant can help you better understand your cash flow position, exposure and financial position. Contact us to discuss any aspect of your business accounts.