I recently fielded a question from a cash-rich client which nearly knocked me for six.
“Garry,” he asked me, “should I consider depositing our spare cash?”
No one has asked me about depositing money in the bank for nearly 15 years! Interest rates have been so low, it simply hasn’t been an option.
But in recent months, there’s been a huge upwards shift in interest rates, and it’s become a valid consideration once again.
For my client, whose spare cash we already carefully manage, there was no straightforward answer.
You see, like every financial decision, there were multiple angles to think about. There’s no objective right or wrong answer – it’s about what’s right or wrong for your business.
Some businesses might require investment in order to grow, and therefore, have better uses for their spare cash than squirreling it away in a savings account. It helps to have a clear growth plan, so you can see what investments might be necessary in the medium-term and manage your money accordingly.
If you decide to invest after all, a high-interest savings account might be the perfect solution. But that’s not a given.
First, because inflation is also high right now, and might eat away at any gains you make through interest rates. This is a dynamic we don’t often pay enough attention to. You need to balance that risk with the opportunity.
Second, because the interest rates that banks offer businesses are typically not as high as they offer private individuals, whom they expect to leave their money in place for far longer. Even in this environment, the rewards of a high-interest account may not be as great as you might expect.
Finally, I’m a firm believer that every business needs to have an emergency fund at hand, which they can dip into without any complications – just because we never know what the future might bring. If there’s one thing we’ve learned in the last few years, it’s that the worst can happen and being caught without sufficient cash can kill your business.
So you do not necessarily want to tie up your spare cash. It depends how much you have and what your business plans are!
The bottom line is that what to do with your spare cash is a decision that needs to be made carefully, having considered all angles, so you can make an informed decision about the right way forward. You need to be agile, looking at external factors outside of your immediate concerns such as interest rates, and reacting to any changes.
This takes professional financial advice and continuous, hands-on financial management.
It is not the kind of service offered by most accountants. But it is exactly what we do here at Insight Associates, when you work with our Outsourced Finance Department.
We work with you closely to ensure that your finances are managed as efficiently as possible and that you have the knowledge, tools and support you need to take the best possible financial decisions for the future of your business.
Our first objective is to make sure you have spare cash, by maximising your growth and your profit. And when you have spare cash, we have the experience and expertise to help you make sensible decisions about what to do with it, to provide the best possible financial results.
As you can see from my client’s enquiry about depositing cash, our relationship with our clients is extremely close and we are highly integrated with their businesses.
We interact with most of them almost every single day, acting as their sounding board for financial decisions and offering the same kind of close financial management you would expect from an in-house finance director.
To find out more about how we can support your business, too, get in touch with me today.
Simply ‘reply’ to this blog or call us on 01279 647 447 to arrange a no-obligation chat, and let’s figure out whether we might be a good fit to work together.
