Help business owners invest in growth

• 44% rate their financial success better now than compared to a year ago — up from 32% last year; and
• 37% plan to expand over the next three years.

“While more business owners are feeling better about their financial health this year and are optimistic about the future, this optimism is not translating into growth or expansion plans,” says Shelley Swanlund, vice president, Business Banking and Head of Small Business, CIBC.

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And despite having cash reserves, many business owners still rely on personal finances to fund expansion. More than 60% say if they were planning to expand, the funds would likely come from sources other than banks or loans against their business — mostly from credit cards, their own pocket or borrowing in their name.

That’s despite 79% saying they have a cash reserve set aside to support their business. Swanlund adds that tapping into personal savings for business expansion is leading some business owners to be more cautious with their expansion plans.

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“While many businesses do have cash on hand, most tend to see it as a rainy day fund they can access in the event they have a slower month with their cash flow or have an unforeseen emergency,” notes Ms. Swanlund. “But this leaves these funds on the sidelines rather than supporting the business.”

Further, nearly 80% of businesses are sitting on a cash reserve. Yet many are not driving much in the way of a return on these funds with 39% saying they’re not earning any interest on their cash reserve.

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“Holding cash reserves in your business is a smart move to ensure you can withstand operating changes or deal with a shortfall in your cash flow, however business owners should be more active in looking at investment or savings opportunities to help grow those funds over time,” notes Swanlund.

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Here are some tips for business owners.

• Build a financial plan. A good financial plan can help entrepreneurs assess the financial health of their business and the opportunities for growth.
• Understand your borrowing options. Some business owners may not be aware of the options they have to borrow for expansion within their business, rather than drawing on personal savings or borrowing on their personal credit cards or lines of credit.
• Create a cash reserve, which can act as a buffer to help businesses better weather the ups and downs they may encounter.