Against this backdrop, several finance decisions were likely to be prioritised as SMEs focused on rebuilding resilience.
A greater focus on cash reserves
Analysis by Allica Bank showed that UK SMEs are being short-changed by high-street banks, with average interest rates on savings accounts sitting at around 1.28%, compared with approximately 4% offered by challenger providers. For a business holding around £750,000 in cash, that difference could represent more than £20,000 in potential missed interest over a year.
Flagstone research showed that 34% of SMEs planned to increase cash reserves in 2026, while a further 48% expected to maintain current levels. As businesses continue to hold significant cash balances, more SMEs focus not just on how much cash they hold, but on where it is held, moving surplus funds out of low-yield accounts and into higher-yield cash savings options.
Diversification as the new safety net
With the Financial Services Compensation Scheme deposit protection covering up to £120,000 of eligible business deposits per authorised firm, more SMEs spread cash across multiple banks rather than holding all funds with a single provider. This helped smaller businesses protect their cash while benefiting from a variety of interest rates and account features.
On average, Flagstone’s SME clients held funds with seven banks through the platform. Flagstone research showed that 56% of SMEs held cash as an emergency reserve, while 45% kept it as a buffer against unexpected costs, reinforcing the role cash played as a safety net.
Automation moved from an advantage to a necessity.
SMEs place greater emphasis on digital tools that automate cash-flow monitoring and reduce manual processes. AI-enabled reconciliation tools simplified cash management, improving speed and accuracy while freeing up teams to focus on more strategic work. Robotic Process Automation systems significantly contributed to the reduction of reporting errors in financial reporting, often outperforming manual processes in efficiency and consistency. Centralised dashboards improved visibility, giving SMEs a clearer, more up-to-date view of their finances.
Labour costs took centre stage.
According to a recent poll, 53% of financial advisers believed the biggest factor influencing how SMEs managed their cash in 2026 was rising labour costs. British Chamber of Commerce research showed that 73% of SME respondents stated labour costs remained their biggest cost pressure.
With the National Minimum Wage set to rise from 01 April 2026, higher payroll costs will reduce cash available for reinvestment, marketing, or paying suppliers on time. As a result, SME resilience increasingly depends on how effectively businesses manage their cash cycle and customer risk, with many reassessing how rising costs are reflected in pricing.
As business conditions remained unpredictable, many SMEs adopted more secure and flexible approaches to cash management in 2026, from building stronger cash reserves to diversifying deposits and automating financial processes.
