You’re Business Credit Card “To Do” List!

A credit card can be very beneficial, especially to those of you who run a business. Credit cards often offer flexibility and offer numerous incentives and rewards for using their services.

This can often be what entices people in to begin with. The promise of extra cash, of overseas trips, of no interest. But there is no such thing as free money, everything comes at a cost.

 

So here’s your ‘To Do’ list:

  1. Establish how much money your income provides you with.
  2. Establish your budget. Just how much do you spend weekly?
  3. Establish what kind of benefits you want to receive.

 

Your Need ‘To Do’ list:

  • Have an accessible account to withdraw from.
  • Have sufficient funds to repay your credit card balance
  • Don’t miss deadlines
  • Don’t over spend or spend outside of your means.

 

Why is it beneficial for a business?

Credit cards keep and track all transactions. Come tax time this is going to be your best friend! See just what you spent money on and where, and check it off your deductibles list!

 

And here are what credit cards are good for:

  • Track records for your bookkeeper.

Your bookkeeper will be LOVINGGGGG you! No more chasing up receipts for this or that, they’re all in one spot.

  • They’re safe.

They are hard to hack and often it’s easier to get your money back from the bank.

  • They provide insurance.

Different credit cards may offer a variety of different insurance types to protect you.

 

Now lets find your credit card

Comparison websites have just become your new best friend.

They allow you to filter the cards by rewards and type of reward, annual fee and interest rate. This helps to you to determine what your priority is and what you most want to get out of your card, and find the card that best works for you!

 

Now a credit card can often be beneficial for a business owner? Why? Because your expenditure is usually taken out from your income. The expenditure has to be less in order to run a successful business. This means that you can reliably pay off your credit balance, and henceforth not pay the high interest rates whilst reaping the rewards that a credit card has to offer, for one annual fee.

 

The bonus to having a credit card as a business owner?

Every time you renew your cards you will receive more rewards points or discounted fees. So yes, there’s that round the world trip in Business Class for you, flights completely covered. When people look at frequent flyer points, the number rarely equates to a financial figure to a lot of people. But I tell you, pay attention, because they can add up, and be worth thousands of dollars. And all this for buying things for your business that you already would!

 

Advantages and Disadvantages of Credit Cards

Credit cards can often be a tricky thing.

Do I get one?

Do I need one?

What can I get out of it?

How much is it going to cost me?

We’ve tried to simplify the whole concept that is the credit card.

Below we have listed the advantages and disadvantages of owning a credit card, to help you establish if it’s the right move for you.

 

Advantages:

Free travel insurance

This is an incentive that a lot of people are looking for when applying for a credit card. Many companies offer this on condition, such as holding a gold or platinum credit card.

Frequent flyer points

A lot of credit cards offer this as an incentive. It may be a lump sum for signing up for a credit card, or per purchase. Be aware that these can add up, and they do hold financial value.

Cash back

Some credit cards are cash back credit cards. This means that for every purchase you make (inclusive of other limitations and conditions, such as number of purchases, to a particular spending amount or time restraint) they may offer a percentage of the amount for those purchases back.

Discounts on products

Some credit cards have associations with other businesses. This means they can offer discounts on particular goods and services.

Reward points

Similar to frequent flyer points, however rewards points may be used to purchase limited items or attain discounts.

Convenient

For daily purchases and online shopping it also allows you to have access to another stream of income. If there is something that needs to be paid, eg. Bills or an important purchase and you don’t have sufficient funds, than a credit card is an option that will allow you to pay these necessities without receiving insufficient funds fees from your bank on your debit card.

Safe

Credit cards are a safer option than cash. They also come with several levels of protection. They often provide insurance for the purchase of some goods and have fraud protection for stolen cards. It is also very easy to cancel a card.

Good credit rating

It can help improve your credit rating or establish a good one if you continuously make your payments and not miss them.

Pay off monthly balance in full = no interest

 

 

Disadvantages:

High interest rates

Credit cards often have the highest interest rates on loans. The average in Australia can often range from 15-22%. This means that if you can’t repay your credit card balance in full by the end of the month than you are open to these high interest rates. This often means that you are going to be paying more for your product or service than what you originally would have.

Overspending

Spending money that you don’t have gets you into deep water. If you have a regular and stable income, and budget right, then paying off your credit card balance won’t prove to be too much of an issue. However, when your debt is larger than your income after expenses, then it can lead into a slippery slope.

Impacting credit score

If you miss a repayment or cannot meet the minimum repayment requirements then this can negatively impact your credit rating. This can therefore effect your ability to apply for a loan in the future.

Credit card surcharge

This is a fee that business have to pay to their banks for the benefit of allowing customers to pay with their credit cards. Many business these days are choosing to pass this surcharge onto customers. This means that you may end up paying anywhere from 1-3% of the purchase price.

Annual fees

Many credit cards will offer a ‘no annual fee for the first year’ as an incentive, however these prices can often increase quite rapidly. Some credit cards may offer a lower annual fee for a higher interest rate and vice versa. This annual fee however means that you can end up paying an additional $500+ per annum just for the convenience of owning and using a credit card.

 

So now the decision is up to you! And don’t forget to do your homework and shop around first.

 

Note: This is only advice, for specific information please contact your bank or financial adviser.

 

How to create a Business Budget (and why it’s so important!)

A budget compares your expected revenue to your expenses, and breaks it down to see where your expenses are coming from.

A successful budget will allow you to plan, forecast, measure your success and take control of your money with no surprises.

It can also help you to:

  • Work towards your goals.
  • Assist you when asking for a loan
  • Minimise risk when making large purchases by knowing the financial ability and stability of your business

 

You can also use your budget to:

  • To establish the costs of labour and materials
  • Understand your cost of operations
  • Set goals
  • Know where your profit margin is

 

A budget begins to give you an understanding of the profitability of your business, and obviously the bigger the number the better right?

It gives a numerical value to your expenses and gives you an understanding of where these expenses are going, and when positioned with your expected income, then you can understand why you are/are not meeting your targets.

It shows you just where that line is between the red, the black and the blue. This includes how many sales are required to cover your costs to get back in the black, and from which point on you can begin to see a profit (cha-ching!).

From there it can help you create a plan, create a goal, and find out your potential for expansion and growth of your business. It can also assist you in establishing just how much you can re-invest into your business.

 

Now let’s have a look at how to create a successful budget.

 

  1. Establish a time frame

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Our suggestion is to make it either quarterly or annually.

 

  1. Create a profit and Loss Report

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How to create a Profit and Loss Report:

a) Calculate expected income

i. Sales of product and services

 

b) Calculate expected expenses

i. Fixed costs:

  • Rent
  • Insurance
  • Payroll

ii. Variable costs:

  • Bills
  • Office supplies
  • Upgrades
  • Client entertainment
  • Fees

iii. Depreciation

  • Business assets
  • Equipment
  • Technology
  • Furnishings

 

*Tip

Record your actual income and expenses during your budget period to help keep you on track and measure the accuracy of your budget for future purposes. It will also help you to assess where costs may be too high.

 

  1. Create a Balance Sheet

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This measures the value of your business and helps establish the difference between what you own and what you owe.

 

 

By doing the above it sets you up in a position to know exactly where your business is at. Because at the end of that day, a lot of it comes down to that bottom line. And we need to make sure we’re making a profit, and we need to know and find out how to boost and improve that. Budgeting allows you to see exactly where your finances are coming and going from and where the best places are in your business are to re-invest them.

 

So if you haven’t already, get on the bandwagon! Because if not its going to be one bumpy ride!

And if have a budget already in place, make sure you revisit it, because this little baby loves [needs] constant attention!