Association of Female Executives of Trinidad and Tobago

Q: I have a small business where I am the sole employee, yet I feel as if all I am doing is making money to pay off my company’s monthly credit card account. I use the credit card to purchase most everything for the business, which, to me, keeps all expenses in one account, but at the end of the month, I end up with little or nothing. When unforeseen expenses come up, I end up using the credit card to pay these bills. Now I am paying so much interest on my credit card account since I cannot seem to clear it. Any advice on this predicament?

Answer I vividly remember the day that I cut my credit card in half with a scissors. Now mind you, having a company credit card can and does work for businesses that have a steady cash flow and a reserve of 3 to 6 months in its bank account. However, having a credit card when you are trying to build a reserve is financially unhealthy.

“A credit card can give you a false sense of security”, said my personal financial advisor Nicholas Dean, of PFA (Personal Financial Advocates Limited). And if your business does not have a reserve, you will end up spending money that you do not have.

Most of us would say “But what would I do without my credit card?” Back to the previous point – A credit card gives you a false psychological sense of security…of having money to spend that you just do not have right now. We whip this card out and pay for items without clearly calculating total receivables for the month (actual received payments) against our total monthly expenses for the month. What is left in that bottom line should really be kept as the reserve that you are trying to build. It shouldn’t go to paying off your credit card.

So what should you use to purchase items for your business? Most retailers still accept company cheques, and for those who do not, there’s always the famous ‘Linx Card’. Set up an account with a Linx card. In this way you can only spend what you have and still have your expenses in one account. A Linx account is realistic. If you don’t have it, you cannot spend it. It’s that simple. And simplifying your spending habits while building a healthy reserve is the only way it can happen.