What do businesses do with their long term cash reserves and profits?

[BBN]

Interested to see what business owners are doing as a survey last year from Allica Bank stated that UK sme’s are sitting on £300 billion in cash with over 50% at 0% interest rates?

 

[fisicx]

Not a problem I have. I have no need for reserves as I'm a tiddly little business where the effort I put into making money equals the size of my bills. Might be the exception but I can't see the point in building up the bank balance. I'd rather spend it on things that make me happy.

 

[Banksbroo]

Fascinating. Do you have surplus cash? What kind of business are you in?

 

[fisicx]

I build plugins. Online only with clients around the world. No need for surplus of anything. Currently down to about 2 days a week actually working.

 

[Banksbroo]

It was the OP I was wondering about. Just wonder if they were in the "marketing for banks" area... it would be a lovely subtle way of promoting a bank we've never heard of.

 

[Mark T Jones]

Not a problem I have. I have no need for reserves as I'm a tiddly little business where the effort I put into making money equals the size of my bills. Might be the exception but I can't see the point in building up the bank balance. I'd rather spend it on things that make me happy.

I'd say that reflects the majority of micro-businesses & some small/mediums - they are essentially lifestyle businesses where the owners enjoy the earnings rather than building reserves.

In the days of double-digit base rates, overnight deposits could earn some decent money, these days you need real money to be worth the effort.

 

[pentel]

Owning instead of leasing the business property has always been a winner for us.

 

[Gettingthereslowly]

Mostly for surplus cash:

Invest sufficent for own business growth
Pay off debt
Get out of invoice factoring (or rather dont get into it)
Build cash reserves of 3-6 months expenses...although covid has made me increase to 12 months, held in business savings accounts
Try and own your own premises
Bung as much as possible into pension scheme (tax efficiency)
then......
Set up General Investment Account & invest in funds (i.e. invest in other peoples business)

I suspect most of the surplus cash the OP mentions is just the working capital/cash buffers that SME's need to run.

If I've done my sums correctly: £300 bn divided by the 5.7 mn SME's in the UK = approx £87000 each business

 

[Pish_Pash]

Currently dropping a chunk of dosh into my SIPP pension (as an employer contribution) - this is a no-brainer if you're nearing retirement age.

It reduces your corporation tax
it increases your pension pot
it reduces the amount of dosh you have sitting in your business (meaning any prospective buyer wouldn't have to pay over the odds if buying your business simply for inheriting the business's cash pile)

....you can go back 3 tax years to use up any unused allowances .....SIPP allowances are ...2022/23 £40k, then £60k for the follow on tax years)

Surplus business cash goes into flagstone, who make chasing the best instant savings rate child's play by doing the wearisome admin of opening closing instant access savings accounts on my behalf for a cut)

 

[tony84]

I've put it in a combination of bonds - 1 year, 18 months, 2 years. I'm not brave enough to do any longer than that.

 

[Porky]

What a beautiful problem to have

Can i swop places please

 

[tony84]

In my case it didnt happen overnight. It was a combination of things really.

It goes back to the brexit vote. I wasnt sure how brexit would affect things, so I started putting a bit of money away with an aim of getting to 1 years worth of bills saved up.

Obviously brexit came but it came with covid. We were busy but we could not go out and spend anything so that helped.

 

[Gecko001]

Having surplus cash is the way to go. It means that you have more choices you can make. It can save on expenses for a start. Even for simple expenses like insurance, paying the full amount means that you do not have to pay over the odds for monthly payments.

Being able to pay on time because you have surplus money in the bank will always stand you in good stead with suppliers. Also, when an opportunity comes along to buy things that have been discounted and the business needs you have the money to pay for it.

Many businesses are run with cash reserves as far as I can see. The Dragon's Den notion that all businesses need to borrow money to operate is one that is not reality for many start-ups and established firms alike.

 

[Mark T Jones]

Having surplus cash is the way to go. It means that you have more choices you can make. It can save on expenses for a start. Even for simple expenses like insurance, paying the full amount means that you do not have to pay over the odds for monthly payments.

Being able to pay on time because you have surplus money in the bank will always stand you in good stead with suppliers. Also, when an opportunity comes along to buy things that have been discounted and the business needs you have the money to pay for it.

Many businesses are run with cash reserves as far as I can see. The Dragon's Den notion that all businesses need to borrow money to operate is one that is not reality for many start-ups and established firms alike.

As someone who sells debt for a living I have fairly clear views on good and bad in the world of 'OPM' - a brief version being - it depends entirely on the plan and the purpose - and if those aren't in place (and properly researched) it's a trap.

I agree with your surplus cash point, though for many of us, that equated to low 4- digits (£2k will comfortably see me through 6 months without a salary) - with current interest rates, id just leave that in current account

 

[potato632]

I stick my spare cash in a Wise Business savings account

Currently it's 3.32% return (after fees), calculated & paid daily - they use government-guaranteed assets and mention it 'may be' FSCS protected (lol)

Money for no effort, better than it sat in a 0% regular bank account

 

[tony84]

I stick my spare cash in a Wise Business savings account

Currently it's 3.32% return (after fees), calculated & paid daily - they use government-guaranteed assets and mention it 'may be' FSCS protected (lol)

Money for no effort, better than it sat in a 0% regular bank account

"May" be protected is ok for some easy access money but you can get over 4% tied up for 6-12 months in something that WILL protect your money. I dont actually know how FSCS works and how quickly you get your money. But having it tied up for 6 months with a guarantee seems better?