by Paul Webster of Cumberland Building Society

Last updated at 14:14, Tuesday, 12 August 2008

While the impact of the credit crunch continues to affect peoples domestic budgets, the knock-on effects for business owners creates equal uncertainty.

• Vist the Cumberland Building Society website

A summer of plenty: If your business is seasonal, save the surplus cash you build up in a higher-interest savings account

In some cases the reduction in activity levels as consumers spend less could mean that cut-backs have to be made and future plans – which could have included investment in further expansion – put on hold.

While some of the costs relating to the planned expansion may have depended upon additional finance being obtained, there will no doubt have been some element of savings that had been built up within the business and earmarked towards such projects.

During the credit crunch careful attention will be given to financial controls within the business, but it is equally important that the best return is sought on the reserves, especially given the higher rate of inflation that currently exists.

This could well manifest itself in higher costs for such expansion at a future point when confidence returns.

Having funds to put aside as savings can also be influenced by some minor adjustments to internal operations.

Check that you are getting the best prices from your various suppliers. Just as you would do with your domestic bills, shop around for the best rates.

You may be using a number of suppliers. There may be good reasons for this, but have you considered asking each of them to quote their best price for your whole supplies?

Also, pay close attention to collecting funds due in from your customers. Remember, profit is only profit once the invoice is paid.

A £5,000 invoice unpaid for one month could be costing your business around £50 in extra overdraft interest. Multiply this by the size of your overall turnover and see how much you can save by staying close to your debtor collection.

If you have assets in your balance sheet which are depreciating, consideration may need to be given to replacing/upgrading these.

In light of the current market conditions lenders may be looking for larger deposits from you.

Putting funds into savings on a regular basis will help you build up these monies and by ensuring that you obtain the best rate on these savings you may well end up having to borrow less for your new plant/equipment when you come to do so.

If your business has an element of seasonal turnover, it is vital that you maximise the return on the surplus cash you build up during the season – £2,000 per month saved into a higher-interest savings account over the busier months could produce an additional £115 in interest compared to leaving the money in your business current account.

• Paul Webster is a business lending manger at Cumberland Building Society. For advice on all aspects of business finances, including savings and current accounts, call 0845 601 8396 or visit www.cumberlandbusiness.co.uk.

• This article should not be relied on when making investment decisions. Always seek financial advice.

First published at 05:38, Friday, 08 August 2008
Published by http://www.cumberlandnews.co.uk