SMEs raid their savings to help fund running costs, fuel bills and wages
SME bosses are relying on their cash savings to help fund running costs, fuel bills and wages as cost pressures mount and revenues are squeezed, new research from Investec shows.
More than one in five (22%) SMEs say they have used savings to pay running costs, while 16% have dipped into their savings to fund fuel bills. Some 16% say they have used savings to pay wages and salaries of staff.
Investec’s study among SMEs shows most firms have substantial amounts on deposit – the average is around £117,000. However, some 834,000 SMEs estimate they have more than £500,000 on deposit, but around 417,000 say they have no savings.
Despite their sizeable cash holdings, most firms are not aware of how much they earn in interest – just 27% questioned said they knew how much interest their business savings accounts pay.
SMEs are braced for further pressure on savings over the next six months – 43% expect to run their savings down with around 4% – the equivalent of 220,000 companies – saying they expect their savings to be wiped out.
The research shows SME cash savings have taken a hit over the past six months with around 36% of companies saying the amount they have saved has fallen. The biggest reason savings has been the rising cost of supplies. Around 60% say that has forced them to eat into their savings, while 48% blame falling sales and 29% cite wage inflation.
Rising costs are not the only reason for falling savings levels – around 19% of firms say they have used savings to invest in the growth of their business.
Some SMEs have seen the level of their cash savings increase – around 10% have boosted their savings over the past six months, with 54% of these companies saying they are saving more because their business is growing, and 49% say it is because they have become more efficient. Around a quarter (23%) of SMEs saving more however, attribute that to cutting jobs or not being able to recruit staff.
Samantha Booysen, head of digital savings at Investec, said: “SMEs are inevitably feeling the economic strain from rising prices and increases in energy bills as well as issues with recruiting staff and funding pay rises for their existing workforce.
“That highlights the need for cash reserves in their business savings accounts which are already proving important for keeping businesses running as demonstrated by the numbers using savings accounts for running costs, and to pay fuel bills and wages.
“SMEs have substantial amounts on deposit and should be looking to maximise returns on their cash as much as possible.”
Investec’s Online Business Savings account is a simple, straightforward online account offering unlimited withdrawals with no hidden fees or charges requiring 32 days’ notice from customers. It pays an interest rate of 1.75% AER on balances between £40,000 and £800,000.