Saving for the future – keeping your business financially sustainable

5 September 2019 • Our Insights

Richard Brockbank, Head of Finance at The Cambridge Building Society, offers insight on the liquidity stress testing The Cambridge implements and why it is a good idea for all businesses to follow this strategy.

It’s often said that “cash is king” in business, and amid all the current uncertainty we face perhaps that’s never been more true. 

Any business will routinely produce cash flow forecasts, but how many stress these forecasts to take account of the worst that could happen? This might be an area where businesses can learn something from banks and building societies. 

You might have heard of the regular stress tests to which regulated financial institutions are subjected. These tests are aimed at making sure that institutions have enough capital and liquidity not just for the normal course of business but for the very worst scenarios the Bank of England considers to be reasonable.

Banks and building societies are required to use the results of these tests to guide how much capital and cash they need to hold. There’s no reason why other businesses shouldn’t carry out a similar exercise. The specifics will differ from business to business, but try asking yourself the following questions:

  • What happens to our cost base if inflation jumps to 4% and stays there for 3 years?
  • How long can our balance sheet sustain a reduction in profit or even losses if there’s a recession and sales fall by say 20%?
  • In the event of a recession, or runaway inflation, how might our customers’ behaviour change? What would that mean for our financial stability? What about our key suppliers’ behaviours?

By thinking through scenarios like these you can build up a picture of the shape your business needs to be in, to withstand the worst that could reasonably be thrown at it, and how much cash you need to hold.

Of course, holding more cash than you need from day to day is somewhat inefficient. It’s the price of maintaining a stable and secure business to an extent but the cost can be reduced by placing that cash somewhere that gives you the right combination of ease of access, security and rate of return.

Why save with The Cambridge?

We know that the money you chose to save is integral to the sustainability of your business.

We are proud to have been a safe place for businesses to save their money since 1850, and to support businesses in the best way possible we have a range of business accounts that meet your different savings needs. With a max holding of up to £2.5 million per business we can support the management of your savings portfolio.

If you would like to know more about any of our business savings accounts, give us a call on 0345 601 3344 or come and discuss your savings options with one of our savings experts at your nearest Store.