Those who have a small business may not run finances separately from personal expenses, but it is essential to separate the two. Establishing a distinctive identity for both checking and credit makes the legalities of owning a business, no matter how small, much simpler to deal with. With practical issues, as well as tax reasons, having credit cards specific for your company are more than a luxury. It is something you can’t afford to be without!
Why You Should Keep A Separate Credit Card
The old saying, there are two things in life that are certain: death and taxes. When dealing with the IRS you want to have everything in order. No matter how small your business is, if you are earning over the limit allowed by the IRS you must claim income. The great thing about owning a business is being able to write off expenses, but if your company writes off expenses you must be able to prove the company bought the items. Companies that have a credit card exclusively for business expenses are able to get itemized statements showing what items were purchased. This makes it easy to file expenses for the accountant at the end of the year.
How Do You Choose Which Card For Your Company?
Both new and established businesses will get an onslaught of credit card offers. If you want to make a profit instead of getting taken to the cleaners with a high interest rate, make smart decision on which cards to choose. Find a card that matches your companies needs. If you must travel frequently, perhaps a rewards card that offers airline miles or hotel rewards is optimal. Some businesses choose cash-back programs, while others go for a low interest rate.
Determine how you are going to use your line of credit. If you are needing to make a large purchase and it may take time to pay the balance down, shop for low fees and interest rates. If you are wanting a card to use for recurring payments, then a reward card may be better, especially if you are going to be paying the balance off each month. Maximizing the benefits is possible if you use your card as much as possible and pay it off. This means that you get more points for purchases, while avoiding interest charges. Paying monthly expenses with a credit card is not only convenient, but it can actually help you earn freebies for your business.
Obtaining New Credit
Operating a small business can present unexpected financial expenses for business owners. Can having a credit card for your small business actually help you make money? For businesses that require an initial investment in equipment or materials, then having a business card is a very good choice. This allows the business to make purchases to grow more business. It “takes money to make money” is true, and investing in new equipment wisely can help your profits exponentially.
When applying for business credit, you may find there is a personal liability clause on your application. For a business that doesn’t have established credit, many financial institutions will require that you sign your name to the credit. This will require that your personal credit score is good enough to qualify for the credit.
Once you have developed a strong credit history for your small business, this liability may be lifted. In addition to the liability being lifted on a credit card, it also makes your small business more able to qualify for large purchases, such as personal office space or more equipment. It will also decrease the interest rate as a new identity for your business is established.
When running a small business, there are many times when an unexpected emergency will come up. Since other people are depending on your goods or services, it is up to you as the business owner to be able to deliver. Keeping one or more small business credit cards will ensure that you can provide immediate items if there is ever an emergency. This will protect your reputation that you will deliver goods and services, even if there is an unforeseen emergency (such as break in, fire, etc) since you will be able to order a replacement while getting your everyday business back into practice.
Every small business can profit from a credit card, whether it is a visible profit, or the less obvious reason such as reputation. Make sure to use your credit wisely, and with the right steps your business will grow.
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Banks are more scrutinizing than ever about extending credit so for new businesses it’s more important than ever to establish small business credit as soon as possible. Acquiring a business credit card with just a small credit limit is a great place to start for newly starting entrepreneurs.
Generally business owner avoid using credit cards as they think that they will overspend with credit cards but if used responsibly, credit cards can increase their purchasing power. Credit card statements help you to see your purchases and expenses more easily as comapred to bookkeeping.
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Thanks,
Laura
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