Greg McAweeney from RaboDirect talks about the simple steps that businesses can take to make their cash work harder, and improve their planning processes at the same time.
There is little doubt that many small and medium sized businesses (SMEs) are doing it tough. A recent study commissioned by the accounting package MYOB, showed that in the course of the year to May 2012, fewer than 20 percent were able to grow revenue and nearly 40 percent saw revenue fall. And less than 20 percent expect things to get better over the next 12 months.
With more pressure than ever on profit margins, it makes sense for SMEs to spend time looking at ways to offset the rising costs of doing business. The MYOB study identified cashflow as the second biggest pressure on businesses, outstripped only by fuel costs, and while you may not be able to control fuel costs, there are simple steps you can take to improve cash management. It is surprising how quickly small changes can result in big benefits.
The difficulty is that business owners are notoriously time poor, and when there aren’t enough hours in the day, many believe that focusing on sales and clients is more important than spending time on the so-called “back office” finance and accounting functions. This can be a mistake however, as the savings made through savvy financial management can often offset the falling revenues you may experience in difficult times. And don’t forget that failing to plan for expenses and having to increase your overdraft to cover them can actually add to your business costs, not to mention your level of stress. Spending a bit of time planning up front can save you a lot of time and anxiety later on.
A good example of what I am talking about is managing the expenses you can plan for. You will no doubt know when your major expenses, like GST, superannuation, utilities and rent are coming up, so it makes sense to plan ahead by warehousing the cash you need via a regular payment or saving process. You may already be doing this. However, if you are using your everyday transaction account, or a separate ‘savings’ account with one of the big banks, you are probably earning little or no interest on your cash reserves.
A true high interest business savings account can really help you get the most from your cash. If you make regular payments from your transaction account to an online business high interest savings account, the money will be there when you need it, earning a high rate of interest, calculated and compounded daily. It adds up quickly.
If you know that you won’t need the money for a specific period of time, an online high interest term deposit offers an even higher rate of interest, with the proviso that you will not be able to access your money until the term is up. However, with terms ranging from one month to five years, it makes sense to compare rates.
Of course, online high interest accounts are not transaction accounts and can never take their place. They do not provide all the features that SMEs need on a daily basis. However, results from the recent RaboDirect National Savings and Debt Barometer found that Australians are missing out on almost $3.5 billion in lost interest every year by keeping their money in low interest bearing, rather than true high interest savings, accounts. As a business, with potentially substantial amounts of cash put aside for upcoming expenses, why forego the interest you could be earning on your cash reserves?
It is remarkably simple to set up an online business high interest savings account online and to have regular payments transferred to it from your transaction account. Generally all you need to do is complete an online application form, which takes a matter of minutes. Where ‘straight through processing’ is applicable, customers’ details are automatically verified eliminating the need for any paperwork.
In most cases you can also arrange for regular payments to be made from your transaction account to your high interest savings account online as well.
Times are tough. True high interest savings accounts are a simple way to get the most from your hard earned cash. Why wouldn’t you do it?
