😊🎶Be happy, don't worry

🌅 Hello! As a welcome distraction from the UK general election, this weekend saw the start of the Tour de France and I’m enjoying it already! I’ve never been a competitive cyclist (I’ve finished a few triathlons in my time) but the TDF is something different. I am in awe of the fitness, guts and determination of the 176 riders making up 22 teams.

Over the next 3 weeks they will ride a total of 21 days and cover 2,170 miles. But the event is so much more than just cycling. It’s 3 weeks of races within the big race, individual and team tactics, good and bad decisions. So relateable to real life and running a business!

In this week’s Financial Stuff:

• 🎯 The death of cash?

• 💷 How much cash is the right amount?

• 🤔 Are you worrying unecessarily?

👇 Let’s get started…

🎯TALKING POINT
The death of cash?

A friend was pickpocketed recently whilst on holiday in Greece. It was an organised affair, his wallet was expertly taken from his packpack whilst walking in a tourist spot, but then quickly dumped.

They had taken all the cash, but left the cards. Cash is untraceable, cards are hassle.

I must admit that I never carry cash, and rarely cards. All the payments I make when out are on my iphone, usually using Apple Pay.

It’s a trend.

According to a recent report from Worldpay, digital wallets are the people’s choice of payment via Apple Pay, Google Pay and Paypal. They accounted for $14 trillion in consumer spending in 2023.

By 2027 the report predicts cash transactions in the UK will be just 6% of all point of sale transactions.

The takeaway for business owners is to make sure there is no friction or hassle when it comes to asking a customer for payment. It needs to be smooth and easy.

🔥BUSINESS OWNERS STRATEGIES
Striking the balance: How much cash should your business hold?

Of course, cash is also a defensive asset. Which is why UK companies have been holding significantly more cash since the start of covid in March 2020.

It’s a natural reaction to the uncertainty caused by the pandemic and other economic factors. It’s seen as a safety net against potential disruptions and flexibility to manage economic volatility.

So it can be tempting to hold cash. But getting the sweet spot between enough liquidity and holding excessive cash is the key. So how do you find that?

The amount of cash a company should hold can vary based on several factors, including the industry, the company's size, and its specific financial situation.

But there are some general guidelines and considerations for calculating the appropriate amount of cash to hold in a company:

Cover your Operating Expenses:

Hold enough cash to cover 3 to 6 months of operating expenses. This ensures you can handle routine expenses like rent, salaries, and utilities without stress. Make sure you include any short term debt payments.

Build an Emergency Fund:

A quick and easy way is to work on setting aside 10-20% of annual revenue. A more precise method is to base it on your cash conversion cycle (CCC) which is factoring the time it takes your business from spending on services or products to then getting paid by customers.

Practical Example:

Imagine a small IT firm with monthly operating expenses of £30,000. Following the guidelines:

• Operating Expenses: £30,000 x 4 months = £120,000

• Emergency Fund: 15% of annual revenue (£360,000) = £54,000

• Total Cash Reserve: £120,000 + £54,000 = £174,000.

Plan for Growth and Investments:

In addition, you might want to keep more cash for available for strategic opportunities, such as expansions or acquisitions. Having cash ready allows you to act quickly on growth opportunities without needing to secure immediate financing.

Where to keep the cash? 

Operating reserves and emergency cash should be easy to access.

Even with a bank base rate of 5.25% most Bank business accounts pay next to nothing in interest, corporate savings accounts pay a bit more but are not great.

You can probably do better. For example, using an online platform general investment account - currently our corporate clients are receiving an AER of nearly 5% pa with immediate access.

🤔 MARKET INSIGHTS
Be happy, don’t worry…

Check any financial news site, and you'll see headlines centered on recent events causing short-term market concerns. Currently it’s the UK election, US election, Ukraine, Gaza, the list goes on and on…

It must be challenging for these publications to produce fresh articles daily.

However, the everyday investor shouldn't be swayed by the media's drive to increase advertising revenue through higher click rates.

While it's undeniable that global issues exist, basing long-term financial decisions on current events is a recipe for failure.

Stay informed, but getting caught up in a cycle of negativity is counterproductive.

Can you recall what you were worried about two years ago?

Most people struggle to remember, as we naturally move on to new concerns leaving the old ones behind us.

The market behaves the same way, continuously climbing a wall of worry, taking occasional breaks before continuing its ascent.

😎AND FINALLY
This week on Youtube

In this week’s Youtube video I’m talking about how to effectively pay yourself from your business, and the effect on other benefits.

That’s all for this week! Hope you enjoyed reading and if you have any questions at all, drop me a note.

Hilary 😎

P.S. GET SMARTER IN LESS THAN 5 MINUTES!
I upload a super short helpful financial video on YouTube every week - you can check out my channel here!

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