Managing Surplus Business Cash Balances!

It may only be 1% - 2% but ignore it at your loss! I keep seeing clients with hardcore surplus bank balances getting no Interest. 

In fact, the other day I spoke to a  client with £1m surplus (i.e. cash not needed for trading) who wasn’t even getting 0.25% interest from his bank. I told him he could easily get an instant access account at 1% which at £10,000pa would cover all our fees twice over - every year!

The trouble is we’re all so busy focusing on the daily tasks to manage sales, minimise costs and ensure that the business makes satisfactory levels of profits each year.  

Usually, checking the business bank accounts is done to ensure that there is sufficient to pay the next 3 months costs, without a thought of the rate that the account is receiving in inter-est and what this could be used for.  

But if you do have surplus cash sitting in your bank accounts now, it’s time to start at looking at how you can manage your business cash more effectively. If you don’t keep your costs under control, you can soon find that cash-flow is an issue and that the bills are due.  

You can avoid a financial meltdown by setting and sticking to a monthly business budget, with all expenditure forecast and set against income.  

This is becoming increasingly straight forward to monitor if businesses use a cloud-accounting package, such as Xero or QuickBooks. These packages immediately show you management accounts to monitor your sales and expenses. But take this process one stage further and prepare a cash flow forecast at the start of the year to highlight when you expect to be generating surplus cash. That way, you know when you’ll be able to go rate-hunting again for another good interest rate on your savings because the banks are crafty and often reduce the rates of interest they pay you. 

Protecting the money as the business begins to make more profits and the business bank account increases, it is important to review where this money is invested. 

IF YOUR ACCOUNT INCREASES ABOVE £85,000, THE ACCOUNT WILL NOT BE FULLY PROTECTED UNDER THE FINANCIAL SERVICES COMPENSATION SCHEME. THIS ONLY PROTECTS THE FIRST £85,000 WITH A BANKING INSTITUTION. 

In order to maintain your full protection, you would need to put monies in other banking institutions, being careful not to choose another bank using the same licence e.g. Halifax and Bank of Scotland use the same licence. 

If you’ll never need this surplus cash and you’d rather not pay higher rate taxes on drawing a dividend then you really should consider moving this cash out of the trading company and possibly into a holding company where it’s safe from creditor claims.

This is a more technical issue but please contact us to discuss this if we haven’t already spoken to you about this option as we’re busy implement-ing this restructuring strategy for many clients.