New research from specialist bank Aldermore, has revealed that many self-employed people are not holding adequate savings that may be needed in the event of an emergency.
22% of businesses say they have no cash savings while 40% only have a figure less than £1,000. Fewer than one in ten of those with a turnover of less than £10,000 had more than £1,000 in savings.
Unforeseen events such as ill-health, floods, fires or theft can leave many businesses in a worrying position without cash savings to provide a safety net.
54% of those surveyed said that they have periods where they’ve been unable to earn money due to ill-health. Of those, almost half (48%) said that they remained off work for more than a month. 22% lost over a third of the working year. This has typically ended up costing businesses around £4,000 in lost revenues.
Not just smaller businesses
While lack of savings may be attributed to low turnover, the research highlights that 8% of businesses with a turnover of £50,000 have no cash savings.
Of those surveyed, 34% had a turnover of less than £10,000 a year before tax. 24% had a turnover of £50,000
On average, businesses in the North and the Midlands have around £500 in cash holdings. This is a huge difference to businesses in the South who typically have around £3,000 in cash. The average across the UK is £1,000 in savings.
Ewan Edwards, Aldermore’s head of savings said, “We want to work with the government to look at means of backing Britain’s entrepreneurs and helping them devise new policies and financial products that will encourage start-ups and protect growing small businesses from the shocks and uncertainties of self-employment. For example, an Entrepreneur ISA or Small Business Savings Allowance could support many businesses that face the ups and downs throughout the year.”
Entrepreneurism on the rise
There are more than five million self-employed people in the UK and another five million have said that they’re considering starting their own business within the next couple of years.
Edwards commented: “Starting a new business is a significant life decision. While many self-employed people relish greater flexibility and control, the first few years can often bring long hours, additional stress and relatively small financial rewards. Quite often, issues that can affect the ability to earn, such as ill-health or childcare mean that many businesses are failing to prepare financially.”
According to research from the Resolution Foundation, almost half (48%) of people who wanted to become entrepreneurs said that they were drawn to the idea of earning more money than they would do if they remained as employees.
However, their research showed that the reality was employees earning an average of £21,000 whereas self-employed people were earning only £13,000.
While this makes it harder to build up a healthy level of savings, Aldermore’s research highlights just how important it is to improve financial resilience.
Are you keeping enough cash saved for emergencies? Have you ever been caught out without a financial backup in place? Let us know your thoughts in the comments.