Do you have a financial buffer? Do you feel safe?

Home Do you have a financial buffer? Do you feel safe?

Do you have a financial buffer? Do you feel safe?

‘SME Owners Need a Year’s Financial Buffer to Feel Safe: Despite Existing Debts’. That’s the striking headline of a recent piece we spotted over in Payments Journal.

Would it draw your eye? It drew ours.

‘With interest rates expected to rise during 2018, over four in 10 admit to having no such backup and average monthly debts of £3.6k’.

However, many people don’t feel really safe without any such buffer.

The research, carried out by Paymentsense, suggests 28 percent ‘of small business owners don’t feel financially confident unless they have a buffer big enough to cover running costs for a year’.

However, ‘more than four in 10 small business owners (41%) admit to having no such buffer in place, meaning as many as 2.3m UK small businesses may have no financial backup plan.’

Is this you? Does it worry you?

Financial confidence gap

‘This ‘financial confidence gap’ between what business owners need to feel secure, and what they actually have,’ says Payments Journal, ‘comes after the British Business Bank published a report revealing that small business confidence and demand for finance are declining.’

So… small business owners may be worried, but ‘the proportion of businesses confident of loan approval fell recently from 58% to 43%’, according to the British Business Bank report – which also ‘highlighted that lending was flat to small businesses in 2017’.

These are, of course, uncertain times…

‘These findings arrive at a time of uncertainty over European trade negotiation outcomes, and reports of an expected medium-term interest rate increase.’

Most popular backups

There’s more in the piece – including insights into what kind of reserves businesses aspire to, and how they’re held, for those which do have them.

‘For those businesses that do have something in reserve, Paymentsense found that the most popular backup is cash savings – held by nearly six in 10 (59%) of prepared businesses. A third (34%) said their buffer included property and nearly a quarter listed an overdraft (23%).’

61 per cent in debt

But the study also uncovered that 61 per cent of SME owners are in debt, ‘with monthly repayments averaging almost £3,600 (£3,589). What’s more, over half (55%) admit to deliberately paying suppliers and partners late to ease cash flow problems. More than a fifth (21%) said they do this at least once a month’.

The piece gives quite a lot more detail, including advice from one business owner on how he built a buffer. It makes for an interesting if sobering read.

Where do you sit on the security versus risk spectrum?

Read the piece in full in Payments Journal.

Photo by Andrew Small on Unsplash

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