SMEs striking a stronger balance between access and returns on their cash

In conversation with Jonathan Pollock, Financial Adviser at Twelve Wealth Management 

SME business owners are the lifeblood of the British economy, making up 99% of businesses in the UK (contains Parliamentary information licensed under the Open Parliament Licence v3.0) in 2024. As a result, it’s crucial that they make sensible, informed financial decisions.

Jonathan Pollock, Financial Adviser at Twelve Wealth Management, helps SME business owners do just that. 

We sat down with Jonathan to find out more about how he advises his clients to guarantee they remain in a strong financial position, even in unpredictable times. 

Can you tell us a bit about your practice and client base? 

Twelve Wealth Management is a financial advice firm that offers bespoke planning services. We work with individuals, families, business owners, and professionals - including contractors and high earners. 

We help our clients make informed financial decisions to help achieve their long-term goals.

How do your business clients usually approach cash management before speaking with you? 

SME clients often build a large cash reserve which is held in current accounts earning zero or low interest. In other cases, the company’s entire reserve might sit in a default company savings account with the same bank. 

What are the biggest challenges businesses face when managing their cash reserves?

The challenges that clients are concerned about include paying corporation tax on time, drawing a monthly income, or being temporarily out of work whilst continuing to draw an income from the business. 

This is why a substantial cash reserve is so important for my clients. But when those funds sit in their current account,   the money doesn’t earn interest. In recent years, due to high inflation, that’s meant the value of their reserve is at risk of eroding away.

In your experience, what role does cash management play in the long-term viability of SMEs?

Cash flow keeps your business alive in the short term, whereas profit keeps your business viable for the long term. Many SMEs are concerned about losing contract work and needing to rely on their cash reserves to continue paying them an income, but this is an unsustainable strategy.

Typically, an SME accountant will recommend keeping a large reserve for security. But this can cause a problem in the future with taking too much cash out of the business.

That’s why I advise my clients to consider a balanced approach.

The above scenario is hypothetical and does not reflect real companies or clients.

Which features of our savings platform have been particularly valuable for SMEs? 

Clients enjoy autonomy and choice. Comparing interest rates across different banks allows them to make strategic decisions about their cash, often for the first time. 

For example, one of my clients was happy to lock a percentage of their cash away for a year before their corporation tax was due. The remaining cash was deposited into an instant access savings account. This meant they were earning money before the bill came due, without sacrificing the peace of mind that comes with having cash readily available.

How do you see cash management evolving for SMEs in the next few years?

The UK economy is riddled with uncertainty. In response, companies are holding onto larger cash reserves to prepare for the unexpected. 

Additionally, with an inflation rate of above 2% and higher interest rates compared to five years ago, people are aware they can get better returns on their cash. 

I expect to see even more clients opening Flagstone accounts, so that they can compare interest rates and act decisively on the opportunities presented by cash. 

I’m encouraging more of my clients to counter inflation and benefit from higher interest rates by using straightforward savings platforms like Flagstone. 

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Twelve Wealth Management Limited is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website https://www.sjp.co.uk/products

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