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Better Credit for Your Small Business: A Plan for Profits, Payments and Planning

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When you’re running a small- to medium-sized business, you’ll have a hundred and one things that you need to do on a daily basis. And one of the things that may get pushed to the bottom of your to-do list is managing the credit rating of your business. Poor credit management strategies can lead to a company falling into debt, which is why every successful company needs to be deemed reputable by its creditors.

There are many different theories as to how businesses should operate when it comes to credit and whether personal and business accounts should be separated. But here are some helpful tips as to how you can plan your credit management to help your company succeed:

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Before You Apply for Credit

Obtaining your personal credit score is very easy to do as major bureaus such as Experian, Equifax and TransUnion offer you free reports once a year but this is different when it comes to your business rating. Business scores are, instead, based on how timely you are with your payments, and, unlike with personal accounts, you can have multiple active credit accounts, so long as they’re all healthy and you’re on top of payments.

Before opening a credit account, you’ll need to make sure you understand your financial situation and that you’ve asked vendors to submit your payment performance to the bureaus (because this isn’t a standard requirement). Then you’ll need to have a clear budget in place so you understand how much credit you’re going to need. Applying for too much could affect your score, so focus on building your rating through suppliers and vendors.

Manage Your Credit Lines Effectively

Once you’ve got a credit card or line of credit for your business, it’s crucial that you manage these in the same way you would your personal accounts. Don’t use them for cash advances and make sure you pay your bills on time, avoiding card hopping where possible.

Don’t Co-Mingle Your Cards

If you’re a start-up business, mixing business and personal expenses can be one of the biggest challenges you’ll have to manage. But you need to be incredibly cautious with this, even if you have got your business credit because of your personal credit rating. Any issues, such as missed payments, mismanaging your accounts or exceeding your credit limit could have a detrimental effect on both your personal and business credit score.

For example, don’t put personal costs, e.g. plumbing repairs, on your business card. Using your business card for pure business purposes will demonstrate to the creditors and IRS that you’re focused on your business, which will, in turn, help you to improve your rating and gain more credit.

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Get Those Rewards

One of the best things about having a small business credit card is that you’ll often be given some great rewards for using these, which may be specific to your interests and industry. Research the cards so you can find a good choice for small businesses and find out which card will offer you the best rewards or cash back for your purchases. For example, if you spend a lot of time flying to see clients, look for a card that offers you air miles as a reward for using it.

Furthermore, some cards will provide you with better protection for investments and purchases in your company. This is particularly good if you’re concerned about fraud as it will allow you to invest in certain fraud protection solutions. That said, most credit cards are incredibly secure anyway.

Monitor Your Cash Flow

The biggest difference between companies who are constantly in the red and those who aren’t is the owner’s ability to manage the cash flow. Any successful business owner will tell you that managing your cash flow is the easiest way to get the most out of your company. That’s why it’s important to put together a monthly budget that you can manage effectively. Make sure you understand just where your cash flow is going from to the start to the end of the month, making a note of which days may be higher than others.

Having this at your disposal will enable you to negotiate with your creditors, coinciding your balance date with your flow projection. It’ll also help you to meet the demands of your payroll, seize those opportunities for increasing your funds and reduce how dependent you are on quick collections.

Finally, don’t just make purchases because you “think” they’re a good idea. Taking on considerable debt is worth it if you need to buy new equipment, hire new staff or move offices but if your business is running well without the need for huge investments, be more cautious about what purchases you are making.

Zachary Cook started his small business several years ago, first running it from a spare bedroom before locating to larger premises. He likes helping out other small business owners and can be found online sharing his thoughts and tips.

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