Running a small business requires entrepreneurs to learn a lot about business, in addition to knowing about the business they are running. Whether you own a gardening company, crochet laptop covers, or sell collectibles online, you are a business owner. With that, you have specific responsibilities and challenges.
If your business is growing, and hopefully that’s the case, you may have periods of fluctuating cash flow. It’s normal but can be difficult to navigate. For example, if you don’t have employees and work under your own name, you may not have a business bank account. However, as you grow, that’s one milestone you will likely reach—a business account with your financial institution, taxes, employment insurance payments on behalf of the company, and more.
What should I look for when I open a business banking account?
Your needs when you open a business bank account will depend on your company size, the type of operation, and the volume of transactions you generate. For example, if you have dozens of clients sending you money regularly, that’s different than if your business model is open to the public, and you must receive funds from hundreds or thousands of distinct sources.
Managing your cash flow (in and out) is vital in optimizing your overall operations as a small business owner. For example, suppose your company enjoys significant sales in one part of the year but slows down in another season. You probably need to continue paying important obligations like rent, taxes, and wages even when your income is lower. Even if your income is steady, you may have periodic needs for large expenditures that disrupt your ability to budget effectively.
Can I use a credit card to even out my budget?
Business financial experts say a small business may need to use credit to pay some expenses temporarily, but many caution that business owners should be careful not to get too far into debt. Small business cash flow adviser Eddie Davis (with FINSYNC) recommends that you know exactly how much revenue you expect over the next quarter before you decide to “charge it.” He also suggests that business owners and managers faithfully use their software and invoicing tools to be on top of what they owe as well as what others owe them.
Take advantage of the best available rates and rewards.
If you decide to use a credit card to even out cash flow or bridge a gap, try to get the best terms for your financial situation. For example, most Canadian business credit cards have high limits and typically also have rewards programs. As a result, you may be able to leverage the rewards to reduce your expenses. For example, if you have a card that allows you to collect airline miles, you may be able to take your next business trip for free.
Suppose you choose a card with a zero interest rate on balance transfers or initial purchases. In that case, you get “free” money for a specific period. If you need to make a significant purchase and spread the payments over time, this is one good option to consider.
Some cards offer extended grace periods, cash back, expense management software, and even protection against employee mismanagement. It’s worth your time to review the features of the cards you qualify for. Remember that some of these cards come with high annual fees and interest rates. The benefits may be worthwhile, but if you aren’t getting enough value to justify the cost, consider switching to a less expensive product.
Is it better to get a business credit card or use my personal card?
When your company has reached the point that justifies using credit to smooth out the cash flow, it’s probably time to start building a credit history for the organization. Plus, having separate finances makes it easier to distinguish between personal expenses and business items. Of course, as with a personal credit card, your business must be able to qualify for the credit line you seek and then manage it wisely.