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How SMEs can avoid common financial pitfalls by managing cash flow



Advice | Advice | Banking | Cashflow | Entrepreneur | Hot Tips | Small Business | Tax, Accounting and Bookkeeping

By Loren Webb

Setting up a small business can be an exciting yet daunting experience. By the time you actually launch your business you have likely experienced a lot of uncharted waters, sleepless nights, caffeine highs and are generally left questioning your overall sanity. Trust me I know.

In 2008 my brother and I started our business, Credit Card Compare, and in the years since have learnt a lot about the financial and emotional pressures faced by entrepreneurs just starting out in business. And then some.

Inevitably there is a steep learning curve when doing anything for the first time, let alone something as complex and unpredictable as launching a business. And often the only way to come up to speed (and fast) is by learning on the job. But if there is one thing we wish we knew more about in those early days, it would the importance of cash flow.

In basic terms cash flow is the movement of money going in and out of a business. Seems simple enough right? Or maybe not…according to Wakefield Research, small businesses are losing a collective $5.8 billion (yes billion!) dollars a year because of cash flow related problems. This is particularly frustrating as it seems that the system preemptively sets new business owners up for failure.

Over the years, we have learnt how to successfully manage our cash flow, which in turn has contributed to our overall growth as a business. Our cash flow golden rule: when the timing is right, ditch the debit card in favour for a business credit card.

This will open you up to a whole stack of benefits. Not only will a business credit card help manage your cash flow issues by spending the bank’s money instead of your own, you are reducing your personal financial liability, building a better credit score and even earning points so you and your team can travel business class.

Getting a business credit card can alleviate a lot of the stress that comes with running a business. As most entrepreneurs know, money can sometimes be tight, especially during seasonal lows. That often means moving funds around in order to make payments. With a business credit card, those payments can be made straight away, allowing you to get back to what is most important without worrying how much is left in your main transaction account.

If you are a business owner or an aspiring business owner, check out these common problems related to cash flow and how business credit cards can solve them.

  1. Spending too much early on: Yes, you have to spend money to make money, especially during the startup phase – but there is a limit, and it will fluctuate depending on your business type, the current market and your access to funding. A business credit card that carries a spending limit can keep you honest and help you avoid going overboard with spending in the early days.
  2. Lack of cash flow budget: Business owners need to stay on top of what is going out as well as what is coming in. A business credit card is a way to consolidate all your information on outgoings in one place. From there you can know exactly what you are spending and then create a cash flow plan that changes as you grow.
  3. Outstanding invoices: You may already know that Australia is among the worst countries for paying invoices late – or not at all. A business credit card can keep your small business afloat to help ride throughthose rough patches.
  4. Placing too much confidence in growth: It is all well and good to invest in predictive analytics to get an idea of future growth, but it can also be the death of your start-up should things not go to plan. A business credit card doesn’t fluctuate with market conditions and can carry you through uncertainty if business isn’t as booming as you anticipated.Verne Harnish is someone I personally look to authority on this subject. He says that “Growth consumes cash – this is the first law of entrepreneurial gravity”.

Think of your credit card as an extension of your employees – you don’t want someone working for you who is inefficient, burdensome and costly, so why would you choose a credit card that is all those things?

Finding the right card for your business is critical – dedicated business credit cards offer many tools personal credit cards don’t. From saving you money and helping track expenses, to simplifying taxes so you can get on with business planning, it’s important to identify the card that is going to meet the needs of your particular business.

Hot tip: If you are a small business owner or sole trader lenders may check your personal credit score while assessing your credit application so it could pay to know this before hand.

We employed our own learnings in the way we built out our Credit Card Compare offering, creating a way for business owners to understand and compare their options to find the business credit card that best suits their particular business needs.

The truth is, setting up a business is hard but it’s not impossible.

There is a wealth of information available; you just need to do your research and find what works for you.


About David Boyd & Credit Card Compare

Credit Card Compare is Australia’s largest comparison site designed exclusively to help Australians compare, research, and apply for credit cards.

Credit Card Compare helps millions of Australians confidently select the most suitable credit card for their lifestyle and financial needs.

Founded in 2008 by brothers David and Andrew Boyd, Credit CardCompare remains independently co-owned by the two original founders to this day.

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