Liz Strauss at Successful Blog

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April 12, 2008

Careful Credit Card Management for Small Businesses

ME Liz Strauss wrote this at 8:14 am

Tisha Kulak works with a credit card service, Creditorweb. Recently she asked if she might put together something about small business and spending as a guest post for this blog. I encouraged her to do just that.

START UPS NEED SUPER CONTROL OVER SPENDING
by Tisha Kulak

Small, start up business owners need to be conscious of spending.

Just because a credit card is in the name of your business, you can’t go on spending sprees and expect to be in the clear. Credit cards designed for small businesses can help you get through some rough patches in the beginning. You may need to finance some equipment to get you started or perhaps charge some marketing expenses to a company card.

The reality is your business finances still remain firmly on your shoulders. Unless you start out with a multi-million dollar contract, your income from a start up business may be more variable than you can imagine. Many entrepreneurs spent time as an employee before venturing out on their own. That employee job came with a steady paycheck. Owning your own business full time does not necessarily make the same promise. Often it takes months to seek out qualified job prospects and more months to seal a deal. Even if you manage to score a few deals right from the start, they may not be so lucrative because you might make financial sacrifices to snag the job.

Small business credit cards do have advantages such as reward programs that offer discounts of office supplies or cash back incentives. However, it’s wise to monitor spending constantly and not simply go wild with purchases to get the rewards. Expense tracking is essential — to maintain a realistic view of your income and expenses and to charge what you can afford to pay off each month. It is important when you contemplate credit card offers and credit companies that you always read the fine print. Make sure you have an understanding of what the rewards programs are and what it takes to accumulate them. If you need to spend thousands of dollars each month to get a couple of bucks back, move along to another offer.

Itemize your credit card statements each month and note which expenses to which part of the business. Make it a point to not mix business with personal, even though you are responsible for both. At the end of the year when you are analyzing your records for tax purposes, the one thing you don’t want is more work to do, sorting through 12 months of expenses.

******

Tisha Kulak is a writer for Creditorweb.com, where she writes about business credit cards and responsible credit card use.

Thanks, Tisha, for the quick seminar!

–ME “Liz” Strauss
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7 Comments to “Careful Credit Card Management for Small Businesses”

  1. April 12th, 2008 at 10:09 am
    Mike Maddaloni - The Hot Iron said

    This is great advice, and should be repeated over and over, especially because I live this every day as a small business.

    It is wise to have separate business and personal credit cards, even if you are a sole proprietor. This helps to separate out the expenses of each. Using tools like QuickBooks help in reporting not only how much but to what categories you are spending. This analysis helps analyze how you spend.

    Typically entrepreneurs underestimate how much it will cost to go on their own. Credit cards are the easy way to finance it, but at the end of the month you have to pay that bill!

    mp/m

  2. April 12th, 2008 at 1:32 pm
    Sean Kelly said

    Good advice, and an important issue for small business owners.
    Financing your business with credit cards is a horrible mistake that most of us make at one time or another. Establishing a line of credit with your bank is not as hard as you might think.
    Here’s a credit card trap to be aware of:
    Even if you never miss a payment but carry a balance, the cc companies can suddenly jack your interest rate from 9% to 30% nearly overnight.
    When they see people getting in trouble, they offer nice guy home-equity loans. Take them up on it and guess what? Their debt is now secured - and tied to your home. Credit cards are “unsecured debt,” meaning that if you default or go bankrupt, they can’t take your house, car or other stuff. They are last in line, behind secured debt, like your mortgage. Before, they could do nothing to you, really, but mess up your credit rating.

    Even people who show financial responsibility can fall into the traps of these robber barons, so small business owners beware.

  3. April 12th, 2008 at 5:19 pm
    ME Liz Strauss said

    Hi Mike,
    I receive so many credit card offers daily. It’s easy to see how folks can get into trouble with credit card debt. Without keeping track as you suggest, it’s awfully easy to just roll out and apply for another, never changing just letting the habit grow larger.

    Yeah, most newly minted sole proprietors don’t realize how much time the company they worked for also worked for them — doing admin and other things that the sole proprietor has to also do now.

  4. April 12th, 2008 at 5:21 pm
    ME Liz Strauss said

    Hi Sean,
    Thanks for mentioning that credit trap regarding secured loans. It’s easy to think of all debt in the same category — money owed. You’ve just pointed out why it’s good to look beyond that easy offer. :)

  5. April 12th, 2008 at 6:46 pm
    Peter Knight said

    I’ve worked a lot in South America and it’s terrible to see good startup business people going down because they were not only too far into debt but sudden changes in unstable economies has left them completely unable to recover. Credit cards can do this without the victim being aware until too late.

    Another good point here is keeping personal and business accounts separate.

    :)Q

  6. April 12th, 2008 at 9:27 pm
    ME Liz Strauss said

    Hi Peter!
    It is sad to see talented people loose so much because they weren’t prepared for economic realities. Both situations you describe are that.

    The problem is that we’re naive about money.

  7. April 13th, 2008 at 4:31 am
    Trip Around the Blogosphere - April 13, 2008 | Pajama Professional said

    [...] Kulak from CreditorWeb guests at Successful and Outstanding Bloggerers with Careful Credit Card Management for Small Businesses. It’s short, but full of concise advice on keeping a tight reign on your business [...]

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