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How to Use Credit Cards to Budget in Your Business.

March 2009

I know what you’re thinking: credit cards can’t be used to make a budget, they’re usually the reason budgets don’t work! The truth is, when you use your business credit card effectively, not only does it help you create a budget, but it also helps you stick to it.

Think about your financial situation, as it is right now. If you have any kind of home-based or small business, you know that you are supposed to keep your personal bills and income separate from the business bills and income. Many of us tend to do that all-in-one checking account, simply labeling transactions as “business” or “personal”, whatever the case may be. This is not overly useful at tax time, though, when you have to go through the transactions line by line to sort them out and file your taxes!

I found a very easy way to set up a budget for my business and keep my personal and business financial information completely separate, all year round. It’s a method most people can use, with just a little discipline and organization – but the effort you put into it will be more than worth it when you know exactly how much money your business has at any given moment, and how much you’ve earned or spent at a glance.

Separate business from personal
First, it’s always a good idea to have a separate checking account that you use ONLY for your business. It doesn’t matter what kind of business you have – even a part-time, network marketing business will benefit by having its own checking account. The good news is, you rarely have to pay to have a full-blown business account. I went to my bank and simply opened a second checking account in my name, and use one account number as my regular, everyday checking account, and the other for my business account.

Second, you should consider a credit card that will be used ONLY for your business. For most small businesses, you can simply get a card in your name and use it exclusively for business related expenses. Larger businesses may require a card in the business name. Either way, the idea is to have a card that is never used for anything other than your business expenses and purchases.

Consolidate business expenses
Once you have this card, use it to pay for any business expense and purchase you make throughout the month. Get a card with an online account manager, so you can keep an eye on how much you’re spending. At the end of each month, you’re going to write a single check from your business checking account to pay your business credit card off IN -FULL . That’s the key word here, “in-full”. You don’t want to carry a balance from one month to the next, because then you’ll pay interest and finance fees. Using a card with a grace period, though, allows you to keep all of your expenses in one place and write just one check each month to pay for them. Not only will you have the credit card statements to show all of your purchases each month, which makes it extremely easy to categorize and file taxes each year, but you will have a much easier time balancing your checking account since you are only writing one check per month to cover the expenses.

In order to make this work for your business, you do need to know how much money you have available to pay your credit card each month – and stick to a budget of spending to avoid spending more than you are making, of course. If you are depositing all business income into your business checking account, though, and simply pulling your percentage of “profit” or your “salary” out and depositing that into your personal account – just like a paycheck – you should be able to tell at a glance how much money remains for bill paying and business purchases.

Reward yourself!
Another advantage of using a credit card to help budget for your business is that you can choose one with a rewards program. Select a program that fits your lifestyle – if you like to travel, go with a card offering a travel rewards program. If you just want to earn cash back, or save money on business related purchases, you can select cards with those types of rewards programs and benefit even more from the card.

Debbie Dragon is a work–at–home mom of two boys, ages 5 and 2. She is a full time freelance writer, and the writer/editor for CreditorWeb.com, where she writes about credit cards, business credit cards, and rewards
programs.

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