Cash-rich SMEs bide their time

Cash-rich SMEs bide their time

Almost half (47%) of SMEs are sitting on investable cash reserves

Almost half (45%) feel that the economy is too uncertain to invest in growth

Over half (56%) of SMEs are worried about borrowing money in the current economic climate

SMEs are sitting on cash and not investing it because of the uncertain economic climate, according to new research by Venture Finance.

The research shows almost half (47%) of businesses are holding on to investable cash not needed in their day-to-day operations.

Peter Ewen, Managing Director at Venture Finance, comments: “In the aftermath of economic crisis, business owners appear to be building up their war chests and waiting for clearer economic skies. But this could become a vicious cycle, sending everyone back into the doldrums. 

“If SMEs can shake off this cautious mood and grasp the increasing growth opportunities available, it could be a great boost for them and for the UK economy.”

The study is based on research amongst 500 SME business owners and directors.

Cash in the attic 

Many SMEs are keeping cash stored to protect themselves from future problems rather than investing in the day-to-day running of the business, the research finds.

Those holding on to investable cash are keeping an average of £190k in the bank.

Almost two thirds (61%) of SMEs are holding on to cash as a buffer incase of future financial difficulty, rather than investing in growth. 

Ewen, comments: “Prudence is obviously important in uncertain times, but SMEs could be taking this too far. Businesses have to ensure they aren’t watching prime business opportunities to expand or even acquire pass them by. 

“While we’ve seen tentative organic growth amongst our customers, it’s important that SMEs ready themselves to seek-out and grab hold of growth when it comes knocking.”

Undue caution? 

Despite signs of recovery, SMEs have been cowed by the recession and remain stuck in a cautious mindset, not considering growth.

Over two thirds (67%) admitted a lack of confidence in the economy and 42% in the current business environment. 

Almost half (45%) feel that the economy is too uncertain to invest in growth with many (37%) putting off growth and waiting for a change in the economic picture. 

As a result of reduced confidence, almost a third (31%) of UK SMEs have no plans to grow and over a quarter (28%) are not planning to invest in growth within the next 12 months.

In an indication of this, only a quarter of SME businesses have made an investment in growth in the last six months while over two thirds (67%) are not currently recruiting.

A large percentage (38%) are instead focused on maintaining the business and keeping existing customers (55%).

Peter Ewen comments: “Many SMEs appear to be sitting back and waiting for a brighter economic outlook which might not come if they don’t take decisive action. 

“The credit crisis has been a big knock to the British entrepreneurial spirit. A shift out of the recession mindset and an investment gear change could be just what’s needed for SMEs to steal a march on their competition and look towards growth.” 

Fear of finance

The pervading caution mindset has also created a ‘fear of finance’.

Despite over half (53%) of SMEs saying they could access external finance if they wanted to, a similar proportion (56%) are worried about the risk of borrowing money in the current economic climate 

As a result, over half (51%) of SMEs said they would not currently seek external finance.

Peter Ewen comments: “The last few years have damaged business confidence and this fear has discouraged many from even seeking external financing.

"SMEs need to put their heads above the parapet and start exploring their business and financial options. Now could be the time to put internal, and external, resources to good use to grow their way out of hard times.”