When you run a small business, having a separate credit card for your business transactions can be extremely useful. However, there are certain expenses that you should never put on your business credit card.
You have to be careful with your business credit card just as you are with your card. Business credit cards can help you meet capital needs, pay for unexpected expenses, and consolidate small payments that would otherwise use petty cash. Hence, they are often vital in business operations.
However, certain expenses should never be put on a business credit card, such as:
1. Personal expenses
Just like business lending and personal lending, business and personal expenses are different. Refrain from using your business credit card for personal expenses, no matter how small. When taking a business trip, stick to the budget and only charge what your company policy allows on the card. Use your credit card for expenses not included in the budget, such as entertainment, additional food and drinks, and hotel upgrades.
Doing this makes taxes easier for you since you won’t have to sift through dozens of statements to separate your personal expenses. More importantly, keeping your finances completely separate will help increase the accuracy of your financial reports. In turn, you can make well-calculated business decisions based on your records.
2. Big-ticket items
Even if a high-value item is a significant investment that can push your business forward, think twice before putting it on your credit card. Using your business credit card for a big-ticket item might have you paying more in interest. At the same time, your utilization ratio increases, which doesn’t look suitable for your credit.
Furthermore, if you fail to pay in full when the bill comes, your debt can snowball quickly. When this happens, your credit score can also be affected.
It’s only advisable to charge a big-ticket item on your business credit card if it’s the cheapest option you have, and you can pay the bill in full when it comes. Otherwise, consider a personal loan or a business credit account with the vendor.
When you start putting payroll on your business credit card, it’s a sign that your finances aren’t looking too good. Your money might very well be running out. Unfortunately, putting a significant expense like payroll on your card can speed up the process.
If you find yourself in this situation, look for other ways to cover your payrolls, like a small business line of credit or short-term loans with lower interest rates.
4. Excessive client expenses
Client entertainment expenses often get charged on business credit cards, but do so carefully and within reason. Spending too much money on meals, chauffeur services, and entertainment can blow up your debt. At the same time, you might blur the line between personal and business expenses.
It’s essential to make a good impression on clients, but don’t ruin your credit in doing so.
These are just some of the things that you shouldn’t put on your credit card, but they are also the most common expenses that business owners wrongfully put on the plastic. More often than not, it all boils down to common sense–if you have to think twice before swiping your card, then you probably shouldn’t do it.