At a recent ABSA bank branch opening in Kasoa, a thought provoking question was raised:
What do banks do with our deposited monies? A straightforward answer might be that they give them out as loans but the reality is more nuanced.
How banks utilise deposited funds
Banks treat deposited monies as liabilities, while loans and investments are considered assets.
They invest deposited funds in various ways, such as:
- Loans: Banks give out loans to customers, earning interest and generating revenue.
- Investments: Banks diversify their investments by lending to businesses, governments and other entities.
- Expanding business: Banks invest in opening new branches, increasing their visibility and reach.
The art of banking
Banks have mastered the art of attracting deposits through effective advertising and sales strategies.
They have built a reputation for trustworthiness, making us believe they are responsible for multiplying our monies.
However, banks operate with specific business traits that contribute to their success:
- Cash flow: Banks prioritise receiving cash deposits daily.
- Reliability: Banks ensure they do not default on payments to depositors.
- Withdrawal diligence: Banks protect their funds by making withdrawals more difficult.
- Deposit collection: Banks collect every little amount as deposits.
- Aggressive sales: Banks actively sell their financial products.
- Risk taking: Banks take calculated risks by loaning deposits.
- Diversification: Banks invest in various businesses and entities to grow their funds.
- Cash flow management: Banks prioritise maintaining cash flow to meet depositor demands.
Lessons for entrepreneurs
By understanding how banks operate, entrepreneurs can apply similar principles to their own businesses:
- See yourself as a bank: Treat your business like a bank, managing funds and investments wisely.
- Prioritise cash flow: Ensure your business receives consistent cash flow.
- Manage risk: Take calculated risks to grow your business.
- Diversify: Invest in various assets or business ventures to increase revenue.
- Build trust: Establish a reputation for reliability and trustworthiness.
By adopting these principles, entrepreneurs can build successful businesses that thrive in today’s competitive market.
