When you’re just starting out, getting the finance that you need to launch your business idea is never easy.
A small-business loan from the bank is a great starting point. A small-business loan will enable you to buy the equipment and products that you need, and should give you a bit of a buffer while you’re getting things off the ground and making the early sales that are essential to start the revenue coming in.
However, a small-business loan isn’t the only financial tool available to you. It’s important that you’ve got access to independent financial advice that you can trust to make sure that you’ve got your business set up in the most effective way possible.
Understanding your cash-flow is key
One of the most common reasons that small businesses or start-ups don’t survive is because of cash-flow issues.
It sounds obvious, but the simple reality is that if you can’t generate enough revenue to cover your costs then you don’t have a sustainable business.
In personal finance, credit cards are often seen as a bit of debt-trap. Consumers can quickly build up large chunks of personal debt without really realising what they’ve got themselves into. However in the business context, a credit card can be a cash-flow lifesaver.
The challenge with managing your business’s finances is that it often seems that everything is due for payment at the same time. There are certain points of the month where you’re inevitably going to hit a crunch-point, where you will have several bills to pay and not enough money in the bank to pay them.
With clever use of a business credit card, you can smooth out this payment cycle – using the credit line of the credit card to effectively delay when the money will actually leave your account.
The key here is to ensure that you stay on top of what you have spent on the credit card. You need to be carefully managing your cash-flow projection to be confident that you’re going to be in a position to pay the credit card bill when it’s due.
If not, you’ll be hit with high fees and interest charges which can quickly become a dangerous downward spiral.
Build the strength of your business credit history
When you’re just starting out with a new business, you quickly realise that you need to prove your credibility to a lot of people.
Suppliers are generally very cautious about setting up new accounts with a business that doesn’t have any trading history, but financial providers also take a very conservative position.
Starting a new business is a high-risk endeavour. While you may be confident of your success, you need to demonstrate to everyone else that your confidence isn’t misplaced.
One of the benefits of adding a business credit card to your financial structure is that it can help to boost your credit score, or your business credit history.
By demonstrating that you’ve managed the credit line of the credit card effectively, made payments on time, and carefully used it to support your cash-flow cycles, then this will count in your favor when it comes time to look at how to apply for a small business loan, or when you are looking to restructure your finances.
Careful expense management is a business essential – big or small
Keeping your accounts in order may not be one of the most exciting parts of running a small business, but it is one of the most essential.
When you’re busy on the day-to-day operations of your business, it can be hard to keep track of the receipts of the things that you’ve bought – small things like coffee when you met a client, or stationery, or bigger things like a travel booking, or new equipment.
Keeping all of your expenses on one credit card can help to streamline that process. All the transactions are clearly displayed in chronological order and it will make the task of matching receipts to transactions a lot simpler.
If your business has employees that are potentially incurring expenses, then it is worth considering allocating a business credit card to them also. This will streamline your expense claim process and reduce administration.
There may also be some up-side on the expenditure that your making on your credit card facility. Depending on which credit card you choose, there’s likely to be some sort of rewards scheme attached to it. The best business credit cards will be attached to an airline that you’re already using, or a car hire firm that you’re familiar with, or retailers where you know you will shop.
You might use the reward points you accumulate within the business as incentives for employees, or you might simply use them yourself as a reward for your hard work.