Want to know a misconception stopping businesses from making more money?
Research finds business owners think they have to use their existing bank for a business savings account. They don’t – and are missing out in a big way
According to the Q3 results of the SME Finance Monitor (compiled by BDRC Continental) which conducts over 5,000 quarterly interviews with business owners across the UK, it seems many are not taking advantage of finance options available to them to help grow their business.
Eight in 10 small and mid-sized businesses reported a profit in their last trading period and Britain’s businesses are still out performing many of their European counterparts. But what are the owners of these businesses doing to fund the growth of their companies in the next year and beyond?
It seems almost a third (30%) of business owners interviewed in Q3 used their own personal money to finance their businesses. This injection was a choice (15%) and something they thought they had to do (15%). However this figure is down compared to 2012 when 42% of business owners interviewed used their own funds to inject cash into their business.
Are businesses owners afraid to borrow?
Why are owners of small and medium-sized businesses using their own funds instead of taking advantage of the plethora of business finance options available to them? According to the SME Finance Monitor, almost half (46%) in Q3 2015 met the definition of ‘permanent non borrower’, with many looking to fund their future growth based on their own funding availability.
But where are businesses keeping the cash they have earmarked for growth and how hard is it working for them whilst they decide on their plan of action to grow their business?
Almost all of the 5,000 interviewees of the SME Finance Monitor had a credit balance in their bank accounts. Almost a quarter (23%) of interviewees, held more than £10,000 which was up 17% from 2011. But holding cash in a standard business current account isn’t providing business owners with any added benefit as current accounts are presently paying 0% in interest rates.
So what can business owners do to make their money work harder for them whilst they build their plans to grow their business? A simple choice is to place surplus cash in a business savings account. There are now a number of different types of business savings options available to suit all types of savings requirements.
It seems despite these new choices many business owners are still not opening savings accounts for their surplus cash and leaving it to flounder in 0% interest rate current accounts. But why is that?
The big misconception about business banking
Research conducted by challenger bank, Aldermore, showed that this inertia stemmed from a misconception that in order to have a business savings account it had to run in tandem with the business current account.
This simply isn’t true, business owners are not compelled to use their current account provider’s savings account, especially if that account is not offering a competitive interest rate.
Another misconception was the perceived difficulty to access their savings quickly should a significant cashflow situation arise. Again this isn’t true, accessing cash from most providers can be done within 24 hours, if not sooner.
According to the BBA Bank Support Report Q3 2015 a staggering £93.1bn is floundering in business current accounts providing hard working business owners with not quite so hard working cash.
Taking the opportunity to review how capital is used within a business is vital to its success. Knowing and understanding the funding options available to help grow a business and indeed what to do with the surplus cash and profits earned will ensure a healthy balance sheet and a sustainable business for the future.
Simon McGuinness is head of marketing – savings, at small and mid-sized business-focused bank Aldermore.