Your credit card is your working capital

Handouts for a startup business?

This piece of advice goes against everything your accountant and bank manager will say to you. If they take you to task just ask them politely if they have ever set up a business.

Taking out a small loan involves a lot of paperwork and distractions during normal work hours which take away from your core business.

Small businesses by definition don’t have comprehensive processes, so keeping it on credit card is one way to keep track of expenses.

It is simpler to use a credit card a lot of the time.

Applying for a working capital loan, including all requests for increase of limit involve a level of dealings with your bank that leave you feeling violated. Let’s be honest, a proctology examination would be relaxing in comparison.

A credit card is simply a pre-approved loan that has a high interest rate. If you are confident you can repay it when you get paid at a later date then there is no reason not to use it (except for higher interest costs).

Working capital is used to cover:

•  Timing delays between payments and receipts from customers (e.g. payroll, office costs, etc.)
• Unexpected expenses – e.g. a new computer, travel, software, accounting help when you are getting a surprise audit, etc.
• Your own costs when you can cover all your other costs but don’t have enough left over to feed yourself.

Be sensible about credit cards and don’t go into debt if you don’t have to, but also see them for the valuable tool they are.