Since 2008, many companies have looked at ways to improve their cashflow and become more agile, helping them to adapt to the changing business environment. Currently, UK companies have circa £550bn in cash reserves. While the UK has more stable economic conditions now, many business still seem reluctant to make a major investment, as the ICAEW Q1 Business Confidence Monitor indicates, thus raising concerns over the long-term sustainability of the UK recovery. To shed light on the issue, ICAEW decided to conduct a repeat of its previous (2013) Cash Surplus Research among 500 businesses. Here are some of the findings.
Six in ten businesses remain with a cash surplus
Our research on cash surplus conducted in March shows that around six in ten businesses currently hold a cash reserve – similar findings to our 2013 research. Perhaps surprisingly, a similar proportion is also expecting to have a surplus next year. This suggests that businesses are reluctant to invest amid ongoing uncertainties both at home and abroad
Furthermore, the size of cash surplus for some businesses seems to be enlarging. Three in ten companies expect their reserve to be higher next year than it is now. A quarter of businesses surveyed already hold 20%+ of their turnover in cash with SMEs tending to have more cash than large companies.
Many businesses are not planning to invest their surplus in the next 12 months
Nearly four in ten businesses are not likely to invest their cash surplus. This is a significant increase since 2013, when fewer businesses were unlikely to use their surplus (38% in 2015 compared with 27% in 2013).
SMEs are more likely than large companies not to be investing their surplus in the next year, thus continuing to enlarge their cash reserves. For many this cash surplus offers flexibility when an opportunity comes along. Alternatively, they may be looking at longer-term investment (over three years).
However, more than three in ten have started investing their surplus, with a further two in ten considering investment. The majority of those who have used their reserve – or are thinking of using it – are investing back into their business, with IT infrastructure and/or training and staff development the most frequently cited projects. Approximately half may also invest in new markets and marketing products and service in the next 12 months.
Confidence in the business environment is needed to encourage investment
Businesses were clear that an improved business environment would encourage them to loosen the purse strings. Seven in ten would use their cash surplus if they had increased confidence in their business’ prospects, half wanted long term assurance about the UK’s economic direction, and four in ten wanted increased consumer confidence or economic recovery of the Eurozone.
For half of businesses, the government could help loosen the purse strings by offering tax incentives and reliefs to invest in their business. Meanwhile, increased public expenditure initiatives, increased investment in transport infrastructure and a relaxation of employment and planning laws were all supported by approximately two in ten businesses.
The research suggests that the uncertain economic conditions pertaining since the recession of 2008/9 have resulted in businesses exercising greater discipline in managing cashflow and caution in taking on major projects. Some businesses will be awaiting the outcome of the election this month – and the installation of a new government – to decide whether to continue hoarding cash or to become less risk adverse. 
