11/ 22/ 2006
Separating business from personal use
If you're in business with someone else, it's essential to keep your personal credit-card use separate from your shared expenses. Even if you are a solo entrepreneur in the habit of putting company purchases on your personal cards, getting a separate card for business would certainly streamline your process for keeping track of your business expenses and profitability.
But do you even need a credit card for your business? You might say yes––after all, credit cards are great to have in the case of emergencies and unforeseen expenses. Yet just as there are cautions regarding your personal credit-card use, there are pitfalls to avoid with a business credit card as well.
Business card advantages
Besides making it easy to track expenses, credit cards can tremendously simplify your life at tax time. Many credit-card companies offer year-end reports that record all of your transactions for the year––looking at one of these is a lot easier than sorting through receipts. You can also keep track of your month-to-month activity online, which makes mid-month viewing of statements easy. (Always double-check your balances before making a big purchase at the end of the month.)
Another advantage to putting your business expenses on a separate card is the fact that you'll begin building a credit history in your business' name. If you ever expand to the point where you want a business bank loan, this will be a boon to your application.
Finally, if your business grows to the point where you take on employees, most credit-card companies will allow you multiple cards for the same business, so the person who does most of the buying for your company can have a card of his or her own. Remember, however, that you should only give cards to your most trusted employees, because you ultimately will be responsible for paying off the balance.
Avoid temptation
If you're the type who has avoided getting a personal credit card because you don't trust yourself not to overspend, you might rethink signing up for a business credit card as well. While you wouldn't run out and buy expensive stereo equipment on your business card, you might start stocking up on items you won't need until later that could eat into your profitability. If you have a hard time saying no to shopping, a debit card would be a better alternative. Knowing that you're immediately dipping into your account might force you to think twice before getting that must-have item.
Choose wisely
A lot of credit-card companies out there compete for your business, so do your homework. Look for cards with low annual percentage rates (APR), though it's still a good idea to pay off your balance at the end of every month. You should also be able to find a card with no annual fee.
Look for cards with good reward programs. After you accumulate a number of points, you can earn items for your business, airline miles and even cash refunds. Decide what sort of program would be most beneficial to your business and go with that one.
Make getting out of credit-card debt your first priority
If you've already gotten a business credit card and have put your first three months of expenses on it, you've likely already accumulated debt. If this is the case, look for places in your monthly budget where you can cut back and put the money into paying off these cards. Always pay more than the minimum balance due--otherwise your business will never get solvent. While credit cards have many advantages, the ease at which they allow you to pay down debt isn't one of them.
