Wednesday, October 8, 2008

Your Small Business Finances

Cash May be King, But Credit Keeps the Order
photo by Willrad

Okay, okay I'm talking about using a credit card when the financial news is all about trouble and moving back to a cash-based society--which by the way I predict will never happen, even if we aren't taking on so much personal debt. And by the way, this can also apply to your personal finances.

Using a credit card smartly can help you organize and plan your business expenses and cash flow. The trick is not to treat it as a buy now--pay when you can vehicle. In other words pay off your card completely each month. Really if you just can't grasp that concept you might consider using a debit card, but you're actually more likely to spend frivolously. Really, I'm serious.

Yes, your debit card pulls right from your checking account which contains a limited pool of money. It's nice because there are no interest payments and no bills to deal with. But here's the catch--Unless you are highly organized and balance your checking account weekly the debit card is not likely to work for your business. Now some SBOs are very organized and will download their transactions to Quicken or Money frequently. But others get so busy minding the shop that they let the piratical stuff pile up. This leads to inefficient supply ordering, inaccurate planning, and poor cash flow management.

Here's the difference with a credit card.

#1 Credit is Important
You probably know how valuable having a line of credit is for your business. Some suppliers may not extend credit, others are cutting back on credit and if there is an emergency the card comes in handy. But having a card and using it are completely different. You've got to keep the card active to maintain your credit status, which is just as important for your business as your personal finances.

#2 Monthly Bills
When you use your card for supplies and other business expenses you'll receive a monthly bill. You'll be able to pay most or even all of your expenses with one check. If you are using a business checking account with limited check writing this is a much more efficient way to pay for expenses.

#3 Monthly Bills-as statements
Your monthly credit card bill/statement is a goldmine of information. It shows you exactly what you purchased for the business in a tidy format. If you're a statistics junky you can even determine your purchase needs throughout the month and compare it to your business results. Plus, if you use online banking these bills are often stored electronically. You can go back at anytime to compare your spending needs month-to-month throughout the year. Use this as a tool for planning and adjusting your budget.

So should you ignore the media and economic frenzy that we're in now? No, it's obvious we got to this point by simple greed and over spending by multiple parties. But it's no reason to panic about your small business. Credit cards are not the evil of our economy they are simply another financial tool and when you use your head they can be quite useful in running your business.

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