A recent SME insights report by Dojo, a specialist in card payments for independent and enterprise businesses, has issued a stark warning: an estimated 110,940 UK SMEs are at risk of going bust due to having no cash reserves to support business operations.

The report found that 2% of surveyed SMEs lack any cash reserve, placing them in a precarious financial situation. Additionally, more than 30% of SMEs identified rising inflation and high interest rates as their primary challenges for 2024. The study also revealed that one in six SME owners were somewhat unconfident in their understanding of the term “cash runway,” which refers to the number of months a business has until its cash runs out.

Dojo’s survey uncovered that soaring costs were cited as the biggest challenge by 30% of businesses, with 36% responding by raising their prices to mitigate these pressures.

Key findings from the report:

No Cash Reserves

: 2% of businesses have no cash reserve, translating to an estimated 110,940 UK SMEs at serious risk.
Small Businesses Vulnerable: Among smaller businesses with 1-9 employees, 10% reported having no cash runway, with 41% experiencing significant financial stress.
Limited Cash Reserves: Nearly 28% of business owners indicated they had less than four months of cash left to support their operations. This was most prevalent among businesses with 10-49 employees, where 56% had up to four months of cash reserves.
Healthy Reserves: About 30% of small businesses reported having five to six months’ worth of cash reserves. This was particularly common among businesses in the education sector (41%), those with a turnover of £1M – £9.99M (35%), and companies with 50-99 employees (34%).
Long-Term Stability Concerns: Only 2% of businesses had over a year’s worth of cash reserves, indicating significant vulnerability in long-term financial stability for the majority of SMEs.

Mya Akbar, a business accounts expert who spoke exclusively with Dojo, recommended that small businesses maintain a cash reserve of at least three to six months’ worth of operating expenses. For businesses in volatile industries, a longer reserve of six to twelve months is advisable.

Akbar emphasised the critical importance of cash reserves, saying: “Cash reserves are vital for ensuring consistent operations, providing a buffer for unforeseen expenses, offering decision-making freedom, enhancing negotiation leverage, protecting against economic downturns, attracting investment, and reducing financial stress.”