We sat down with Tom Simic, Principal CFO Advisor/Director at Simic Financial and the CAANZ Young Accountant of the Year 2025, to discuss the complex financial challenges faced by electrical contractors. From navigating the brutal cash flow cycle to mastering the use of business credit and distinguishing between good and bad debt, Tom breaks down the golden rules for keeping your business financially healthy.

Let’s dive in with business credit cards – how can they help electrical contractors who might need to buy a lot of supplies up front but can’t invoice for 30-90 days?

The best use is for small, short-term funding, paid back before interest accrues – within the 44-55 day period. It’s important to avoid letting the balance grow so large you’re unable to clear it before that period ends. This works if your accounts receivable days are less than 45 days. Longer than that, and it quickly erodes your job margin. For example, some ‘shift loans’ are deceptive, offering 3% per month, which is 36% annually. If a job’s margin is only 10%, a 12% interest cost over four months eliminates all profit. Using a credit card interest-free allows you to scale jobs quickly, using the bank’s money instead of your own.

What tactic would you recommend for managing that 44-55-day process?

Automate the repayment so you don’t have to monitor it constantly. For significant balances, however, you may want more manual control. And always be wary of letting the amount blow out. For example, if you’re putting staff wages or equipment on the card, and the repayment is automated, you risk having nothing in the bank account on the due date. Also, avoid relying on a single job’s payment to cover a large credit card balance; if that payment fails, you’re in serious trouble.

Speaking of debt, how do you define good debt and bad debt?

Good debt is anything that positively contributes to earning more revenue and can be paid off quickly. For example, if you know a $100,000 payment is guaranteed in two days, taking a short-term debt to do extra work that boosts the payment to $150,000 is good debt. The clear intention is to generate better income, and you can clear the debt within a short timeframe. Bad debt is long-term debt (like the 36% loan), debt used to fund your own wage, or debt used for lifestyle. Generally, it’s any debt where the interest rate isn’t better than the return you’ll get.

You mention lifestyle spending there, things like holidays and lunches out. Can electrical contractors use a business credit card for this too?

That’s not something I’d recommend – keep all lifestyle spending separate. Set up a clear wage or dividend policy so the business pays you an established salary. All personal spending then comes out of that personal pay. The business must operate as its own entity and its own account to avoid issues, especially with ATO debts.

Using a credit card to pay off other credit is often referred to as the ‘danger zone’. How can electrical contractors avoid this?

The ATO has recently effectively encouraged using a loan to pay off tax debt. The short-term positive is that you can use the 55-day interest-free period for tax payments, especially if payments are incoming soon. Any longer, and the high credit card interest rates (18-25%) are problematic. For longer-term needs where you anticipate fluctuating into debt over a year or two, getting a regular bank overdraft is far more efficient. Overdraft rates are much lower, around 14%, and you only pay interest on the amount drawn down, making it a cheaper option than a credit card or short-term loan.

Are there any other ‘golden rules’ for managing credit that we might not be aware of already?

Clear your balance every month to avoid interest. Be careful with high-fee AmEx cards; the annual fees can outweigh the value of the points. Services like pay.com allow you to pay ATO debt with a credit card for points, but the 1-2% surcharge often cancels out the value of the points, making its primary benefit the free 55 days of credit. Finally, gradually increase your credit card usage; don’t immediately put a large amount on the card the first time you use it.

What are the key questions that electrical contractors should be asking their accountants each time they catch up?

Ask for your average margins: gross profit margin and net profit margin. This is crucial for understanding your business. However, you shouldn’t rely on a tax accountant for this data. Most only see their accountant once a year, and the data they review (the tax return) is three to 15 months old. This old data is useless for making current business decisions. You need to self-educate or seek advisory services to figure this out, as most tax accountants don’t know what’s in your bank account or provide real-time strategic advice. This is why CFO advisory services, which offer day-to-day, year-round business support, are becoming essential.