Tuesday, March 25, 2014

Credit card use

     Free daily advice for people in small business
     from someone who has been there, done that

     Credit cards rank right up there among the great inventions of all time. Credit cards are just as important as the telephone and automobile.

     The telephone allowed us to transfer information across great distances. The automobile then conquered the distance itself. Both brought us increases in personal freedom.

     The credit card is a horse of a different color. It solves a business transaction problem.

     Yes, the convenience angle is part of it. You reach for your Visa, Mastercard, Discover, American Express or other card just as your grandfather reached for his money clip. 

     Most small businesses accept credit cards in payment for goods and services. Big companies take it to another level--try renting an automobile without a credit card.

     Many owners of small businesses exploit the credit card mechanism in other ways. They use their personal credit cards to solve cash flow problems in their small business.

     Example: A gift shop owner buys items wholesale using a credit card. Depending on the timing, the bill is not due for 10 or 20 or even 30 days. The items can be sold, and the retail price collected, before the statement arrives from the credit card company. The owner pays the bill, pockets the difference, and everybody's happy.

     Or are they? What pocket received the difference? If everything is kept clean, the difference goes back into the business pot. If not, the difference goes into the owner's personal pocket.

     This same example can apply to a restaurant, a small market or clothing store, or any number of other types of operations. 

     A business has great elasticity. But if a rubber band is stretched too far, it will break. The same is true of your business.

     If you are running your operation using credit cards to fill some occasional gaps, that is manageable. But if the gaps turn into long stretches, then you are headed for trouble. 

     Don't misunderstand. Sometimes you need to take a gamble. Taking risks is what starting and operating a small business is all about. 

     Work it out on paper. Running up credit card debt is expensive--check out the interest you can expect to be charged. Those are real dollars that will not be working for you--they'll be working for the credit card company. 

     Business loans come at much cheaper rates. If you can qualify for a business loan at a bank, it is a much better alternative. 

     If you can't, then the credit card route might be your only option. Just do it with your eyes open. You're flying alone here, but you're not flying blind. 

     If you have questions on this or any other topic covered,
     email me direct at: AlWarr16@gmail.com and put BLOG in the subject line.


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