Some entrepreneurs see a credit card as a financial liability. And there’s some solid logic behind that. It can be easy to get behind on credit card payments and end up completely undermining your goals and ending up with a net financial loss from your credit card usage. But a credit card can be a very valuable tool for responsible business owners. Here’s how a credit card can be of benefit to your company’s long term health.
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Segregating Personal and Professional Expenses
If you’re a small business owner, there’s a decent chance that you’ve used your personal credit card to pay for expenses related to your company. This is especially true for self-employed business owners or budding entrepreneurs, and that makes sense too. The investment of time, money, and effort that a small business owner needs to invest in their business blurs the line between professional and personal.
And while a credit card can make daily affairs much easier for a smaller business owner, it’s going to become a necessity for most small business owners as their company begins to grow larger. As your taxes and finances become more complicated, splitting up your personal and professional expenses will become critical to filing your taxes – especially if you find yourself dealing with the threat of an IRS audit in the future.
Business credit cards rarely offer the scale of financial leverage you’d find with a business loan, but they offer one important advantage you can’t get from a loan: rewards programs. These can take a number of different forms, and the diversity of rewards programs means that you have a lot of leverage to seek out a card that specifically suits your needs.
Look for which rewards are going to benefit your business best in the short- or long-term, and then see out credit cards that best accommodate those needs. If you’re using a card for a large upfront expense, look for a card that offers low APR. A lot of cards even offer 0% APR on your first purchase. Travel rewards are a perfect fit for regular business travelers, while a card that offers discounts at restaurants can be great for a business that needs to wine and dine clients regularly. Cashback rewards – which returns a percentage of your spending – are a sufficient all-around choice. As your business grows, you can benefit from expanding the number of cards you have and using them for the situations where they offer the most benefits.
Controlling Employee Spending
Handling employee business expenses can be a real headache, and that becomes doubly true when you start expanding the size of your staff and dealing with more complicated business expenses. By using a credit card – or multiple credit cards – you can better track where and how your employees are spending money and save the time you’d otherwise have to spend reimbursing your employees for their expenses.
Even better, many business credit cards allow you greater control of where and how your money can be spent. By setting parameters to each card, you can establish unique accounts for the different sorts of expenses you might find your company needing to pay for. It’s usually quite easy to set spending limits on a card, and that can ensure that you and your employees are more thoughtful in their spending. As an added perk, many credit card companies will give you multiple copies of your card for free. That way, you don’t have to create different accounts even if you have multiple employees placing expenses at roughly the same time.
For business owners, a company credit card is a sensible choice, but you need to exercise caution. Overinvesting or being reckless with your card is an easy way to rack up debt and drive yourself out of business. But an entrepreneur that can exercise responsibility will have a lot more flexibility to expand and grow their business.