For most individuals, saving is usually a way of achieving a specific goal. Businesses, on the other hand, typically have varying short-and long-term objectives, the most important of these arguably being the ability to maintain a healthy cashflow in order to meet their short-term operational needs as well as their longer-term growth ambitions.
According to Vaughan David, CEO of FNB Cash Investments, Business, this is a very important differentiation for business owners to grasp, because it means that a business should never attempt to model its cash management approach on the savings behaviours typically seen in individuals.
“The vast differences between various types of businesses make it impossible to offer any hard and fast rules regarding effective cash management, but it can safely be said that no business has ever saved its way to profitability,” David explains, “rather, successful businesses are those that effectively reinvest any cash they have back into running and growing their business, which means that the efficient management of cash flow and cash reserves is critically important.”
He emphasises that while a business won’t save its way to success, it can augment that success through effective cash management, including investing cash reserves or surplus in interest bearing accounts until they are needed.
David says that achieving this optimal cash management state requires that business owners are finely attuned to the current and anticipated future cash flow needs and cash reserves of their business.
Then, they need to effectively combine a range of fit-for-purpose savings and investment accounts to roll their cash effectively on an ongoing basis. He points out that this type of diversified cash management approach, using various accounts, is a relatively easy business discipline to put in place, but the benefits it provides in terms of underpinning the sustainability of the business are invaluable.
While the most effective way to optimise cash will differ from business to business, David says that the foundations are fairly universal. Firstly, separating your day to day transactional account from your savings helps businesses, and individuals for that matter, manage their short- and long-term cash requirements.
“Many of our most successful business customers have numerous cash management accounts in place at the same time, ranging from a transactional account for daily operations to a call account, like FNB Business Call, and then a combination of 7-day, 32-day and 45-day notice accounts to store cash for longer range expenses.”
He points to the FNB Cash Intelligence Investment account as a good example of such a high-growth, low-risk notice account that can be used by businesses or high-net-worth individuals.
A capital guarantee makes it a low-risk cash management solution, while interest rates linked to money market instruments mean it provides very competitive growth. For example, at the time of writing, the FNB Cash Intelligence Investment was offering interest rates of 5.22% for deposits over R5m, and 4,9% for amounts over R1m.
“Given the significant interest our clients earn in these accounts, it’s easy to see why many of them include notice accounts in their diversified cash management approach,” he explains,” and the financial discipline they build within the business is often even more valuable.
“As is the fact that by managing cash outside of the day-to-day transactional account, the business lowers the risk that it could find itself facing a big future expense, such as a VAT payment or salaries, only to discover there is not enough money available to cover the expense.”
David says that FNB has taken various steps to make it easy and affordable for its business customers to achieve this level of seamless, optimised cash management.
All the FNB business savings accounts are no-cost savings vehicles, which means that our clients can open as many accounts as they need to effectively manage their cash, and it won’t cost them anything extra.
Digital transfers between the various accounts also incur no additional costs. And clients can rename these accounts however they wish, thereby clearly earmarking each account for the long- or short-term cash optimisation purpose it is intended.
“We consistently see the advantages that a diversified cash management approach affords our business clients and our affluent retail clients who often apply it to their personal or entrepreneurial finances,” he says, “and we work tirelessly to instil an understanding amongst all our clients of the value that small, disciplined cash management steps taken today can have for the long-term growth and sustainability of their businesses tomorrow.”