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Sep252020
Cash Flow
This is meant to drive self-awareness amongst entrepreneurs. To do so, it is pertinent to first explain the psychology behind why credit cards create such a negative experience for most, and how they can be used to improve your business.

Why are Credit Cards an Anchor for many small businesses?

Believe it or not: Behavioral Economists have shown that the human brain registers pain when making a purchase. This pain is our way of self-regulating our spending habits.

Credit card companies take advantage of this, strategically creating an environment that lessens the perceived pain that is felt. Making it easier to justify larger and more frequent purchases that you otherwise may not have made.

  • The Plastic Card – Being less tangible than actual cash, spending money with a card actually “hurts” less. Ever wonder why casinos use chips vs actual currency?

  • Deferred Payments – The impacts of paying for an item in the future is harder to conceptualize then paying for an item in the present. Once again making spending money “hurt” less.

  • Reward Programs – Built in incentives meant to help you justify spending more money. Platinum Member, Gold Card, Cash Back, Points…. All ways to make spending money feel like a game.

How can I use Credit Cards as a Tool?

Being self-aware that credit cards are built to manipulate your spending habits is a great first step to using credit cards, instead of being used by them. By following a few simple rules, you can take advantage of all the positives without the negatives.

  • A Tool to use for Fraud – Being one step removed from your actual cash makes it harder for employees and third parties to steal your money. Getting fraudulent debt forgiven is generally easier and less time consuming than getting your money returned to your account.
  • Purchases at a Discount – Reward programs and cash back deals, although meant to manipulate can be great to take advantage of under the right circumstances.
  • Improved Cash Flow – By controlling when items can be paid for, you can time payments strategically.
  • Data Management – Using different cards to track location / employee / department spend can lead to invaluable intelligence when making business decisions.

The Rules

  1. Do not keep a balance Pay off your invoice in full each month to avoid interest payments. Even with rewards and cashback, paying interest outweighs their benefits, negating any rewards you have accrued, making them “point” less.
  2. Credit cards are no excuse to spend more Before making a purchase, ask yourself if you didn’t have a credit card, would you still be buying this item? If you lack the funds in your operating account, do not look to rely on your credit card. Avoid justifying paying off items over time. Avoid making large purchases with a credit card (there are other debt vehicles for that).
  3. Rewards manipulate behavior Only check your points quarterly to avoid letting incentives give you a false sense of victory. Proactively identify which cards are best used for specific vendors and let your points be the icing on the cake, accumulating out of sight. Remember to remain self-aware of justifying making unnecessary purchases in the name of accumulating points.

TAKE ACTION TODAY! Ask yourself, do I pay off my credit cards each month?

  • If yes, start taking full advantage of the 4 ways to use debt as a tool.
  • If no, ask yourself why? Is it time to implement new habits, apply automation to avoid missed payments or to implement controls to stop overspending?

Still unsure what to do next? Call Accounted4 at 215-801-3365 or visit us at www.accounted4llc.com! We are happy to diagnose your underlying problem and provide a complimentary consultation to help you outline your first steps.

Take the Accounted4 Challenge! Our QuickBooks Online analysis meant to find money being left on the table. How much money can we find you?!

Category: Cash FlowSeptember 25, 2020
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