Paying for Business Expenses Applying for a business credit card is something a small business should seriously consider for itself. Business credit cards can provide a range of benefits to a business. They allow a company to build up credit for better borrowing conditions down the road. They’re also quite easy to apply for. In this article, we’ll go over how to apply for a business credit card and other important points to note. What Is a Business Credit Card? A business credit card is a credit card that is intended for business expenses. These cards are not meant for any individual’s personal use, but they are available to businesses of all sizes. What Is a Business Credit Card Used For? Business credit cards are meant for business expenses, and as such, they come with several perks that you wouldn’t get with a normal credit card. Business credit cards typically have far higher credit limits than normal cards, but they are also harder to qualify for. [youmaylike] As a business phenomenon, business credit cards vary their offers greatly, and certain cards are meant for certain businesses. They are also highly customizable when it comes to individual payment terms. Businesses don't always have consistent incomes like individuals do, and business credit cards handle this problem. These cards are used to gain access to a long line of credit, to control employee spending on business expenses and more. One of their other common uses is to make accounting easier, as putting all business expenses on one separate account makes reporting to the Internal Revenue Service easier. In the end, there are many uses for a business credit card. Why Would I Need a Business Credit Card? You might not need one, but if you run a business, you’ll be leaving money on the table by not at least looking into them. Business credit cards can solve many of the problems business owners face. If you need employees to make purchases for the business, a business credit card is the safest option. These cards can be given to authorized users, a status you can easily give to any of your employees. From here, these cards make it easy to monitor employee spending and spot any discrepancies. You can attach customized user privileges to each card to limit spending and place limits on where the card can be used. As mentioned, if you feel like your credit is too limited, business credit cards are a sure way around low credit. According to the American Bankers Association, the average monthly payment on a business credit card is twice as high as the average payment on a normal one. If you’ve found yourself annoyed with the Internal Revenue Service over the complicated reporting processes for business owners, you’re not alone. This is where a business credit card can solve another problem. Simply handing over your business credit card statements to your accountant will make them love you. It will also provide them with the information they need to predict future spending. Another great use for a business credit card is lifting your liability for debts. Liability for credit card debt is determined by the liability offered by the card. If you’re using a personal credit card for business expenses, you are liable for all debts. On the other hand, if you use a business credit card with commercial liability, your business is liable for any debts, which changes the game. Keep in mind that some cards offer joint liability, which leaves both you and your business liable for any debts. Make sure you know what you’re getting into before signing any paperwork. Lastly, just as personal credit cards offer rewards programs, so do business cards. The main difference here is that business credit card rewards are tailored to your business needs. How to Apply for a Business Credit Card Before you apply for a business credit card, you should make sure you’re eligible. For the most part, you only require the following to be able to apply for one: A legal name for your business. A business structure to apply with, such as a Limited Liability Corporation. An explanation of the nature of your business. You’ll typically be given a list of industry types to choose from. A tax ID number issued by the Internal Revenue Service Your roll in the business you’re representing Various business/financial information including: Annual revenue. Number of employees. Length of time in business. Estimated monthly expenses. If you have this information ready, you can apply for a business credit card. At this point, it would be wise to shop around and find the best option for your business. Your decision on the business credit card you choose will have larger ramifications than your choice of a personal credit card. Applying for a business credit card is much the same as applying for a personal one. There are a few differences, but the main thing to remember is that business credit cards are taken more seriously than normal ones, so you’ll have to face a higher bar of entry. This doesn’t mean getting a business credit card is hard, but it does mean you need to arrive more well-prepared than you normally would. To make things easier, you can prepare for certain obstacles in advance. You may need to sign a personal guarantee that you will pay off any debts. Also keep in mind that if you’re the one applying for a business credit card, and your business doesn’t already have one, they will conduct a personal credit check. It may be best to try to optimize your personal credit if you plan on applying for a business credit card in the future. Some Options at a Glance Here are some of the most popular options for small business credit cards: Chase Inc Business Preferred This is a great option for a few reasons. With the Business Preferred card from Chase Inc, you get 80,000 ultimate reward points when you spend $5,000 with the card in the first three months. The card also provides generic, but highly useful benefits for business owners. Business Platinum Card from American Express The Business Platinum is ideal for businesses that spend a lot on flights and travel. This card offers numerous rewards on flight and hotel expenses and makes sure you get something serious back if you use it for these expenses. Chase Inc Business Unlimited The Chase Inc Business Unlimited offers unlimited 1.5% cash back. While we’ve said enough already, they also offer several other perks that are overshadowed by their first one.
Get Your Finances in Order
Creating a personal budget may seem complicated, but it doesn’t have to be. A budget helps keep your spending in line and it helps meet long-term goals. In this article, we’ll look at how to make a personal budget. We’ll cover analyzing your spending, income versus expenses and how to divvy up your payments, among other things.
How to Begin Analyzing Spending
Before you make a personal budget, it helps to analyze your spending. By analyzing your spending, you can see where all your money is going. Thankfully in today’s increasingly cashless society, analyzing your spending is easier than ever before. The simplest way to analyze your spend is to review your credit card statements, bank account statements and receipts.
If you’re like most people and you use your credit card most of the time, this may be your one and only step. Many of us get into the habit of blindly paying our credit card statements without taking the time to review our expenses line by line. By taking the time to review each and every expense line of your credit card statement, you could not only spot possible fraud and duplicate charges, but also get a good snapshot of where your money is going. For example, spending $5 here and there on coffee may not seem like a lot, but when you realize that you’re spending $150 a month on the “occasional” coffee, it can be a real eye-opener.
Once you’ve reviewed your credit card statement, you’ll want to shift your focus to your bank account statements. Even if you don’t use your debit card a lot, reviewing your bank account statement is an important second step. Most of us have bills automatically coming out of our bank account (some companies don’t let you charge some bills on your credit card). For that reason, you’ll want to review your bank account for charges. This will remind you of any expenses you may have forgotten about. It will also give you a good idea about how much money you have coming in on a monthly basis (remember that your paycheck is after tax, not before tax).
The last step may not be necessary for some, but if you find yourself using cash to make purchases on a regular basis, you’ll want to get into the habit of holding onto receipts, if you aren’t already doing so. To make things easier, you can create a file folder of receipts in your filing cabinet at home. Once a month you can add up and categorize your receipts. For example, you can create a category for food, transportation, entertainment, etc.
By taking the time to review your credit card statements, bank account statements and cash receipts, you can truly analyze your spending for the last few months.
Income versus Expenses
In a budget, you have income and expenses. Simply put, income is any money that you have coming in, while expenses is any money you have going out.
All things considered equal, you tend to have less control over your income versus your expenses. If you are a full-time permanent salaried employee, you can pretty much rely on your paycheck. However, for those who work on commission, your paycheck is determined based on how you perform, making it more difficult to budget.
If you find that your income isn’t enough, there are things you can do to boost it. For example, you could get a part-time job or take on a side hustle, such as writing or photography.
When budgeting, remember to use your after tax (net) income instead of your before tax (gross) income, since household expenses are paid with after tax dollars.
When compared to income, we tend to have a lot more control over our expenses. Expenses can be divided into two broad categories: fixed and variable expenses. Fixed expenses are expenses that generally stay the same on a monthly basis — for example, your mortgage payments, home insurance and gym membership. Meanwhile, variable expenses can change on a monthly basis. Examples of variable expenses include water, heat and hydro.
By reviewing your fixed and variable expenses on a regularly basis, you can make sure you’re getting good value for your spending. If you find you’re spending more than you make, that’s a problem. You can take corrective action and adjust your spending to bring it back in check, so you’re not running a deficit on a monthly basis.
How to Divvy up Payments
Instead of just lumping all your expenses (payments) into two broad categories, fixed and variable, it helps to further divvy them up. You can divvy up your payments however you like, but I find it helps to have spending categories. For example, you can have spending categories related to your home, including mortgage, home insurance, utilities, repairs and maintenance. Outside your home, other spending categories you might have include groceries, transportation, dental, medical, clothing, gifts, restaurants, travel and more.
When creating a budget, instead of simply saving whatever money is left over, it helps to make savings a priority. You can do that by allocating a portion of your income to savings. Rather than just creating a broad savings category, it helps to create savings subaccounts with specific purposes — for example, an emergency fund, family vacation, down payment, etc. By treating savings as a priority, you’re more likely to meet your savings goals.
Likewise, it’s a good idea to allocate a portion of your paycheck toward debt repayment. Whether you have student debt, a line of credit, car loan, mortgage or credit card debt, by allocating a portion of your income in your budget toward paying those off, you’re more likely to have money left over after you’ve paid all your bills to actually make those debt payments.
Once you’ve divvied up your paycheck between payments and savings, ideally every single dollar will be allocated. It’s okay if you have a $100 surplus, but ideally your budget will be equal to nil. However, if you find that there’s a deficit, you can adjust your budget to bring your spending in line.
How to Make Spreadsheets for Tracking
To make the most of your budget, it’s important to track your spending. Tracking your spending involves comparing the amount you have budgeted for a category against the actual amount you spent. If your spending is the same, you’ve come in on budget. If your spending is less, you’ve come in under budget. However, if your spending exceeds a spending category, you’ve come in over budget. If you do that on a regular basis, you’ll either need to reduce your spending in that category or increase the amount you have budgeted toward it.
It helps to use a spreadsheet to keep track of your expenses. A spreadsheet doesn’t have to be complicated. Start by listing out all the budget categories mentioned above. Next, you’ll want to create three headings: estimate, actual and difference. Estimate is for the amount you’ve budgeted for a spending category, actual is how much you spent in a spending category and difference is the difference between the two. As previously mentioned, ideally you’d like it to break even or be a surplus. If you have too many deficits in spending categories, you’ll come in over budget and not meet your savings and debt repayment goals.
What Should You be Aware Of
A budget isn’t worth the paper it’s written on if you don’t use it. Get in the habit of regularly reviewing your budget and making adjustments when necessary. By doing that, you’re more likely to stay on budget and meet your savings and debt repayment goals.
How Can You Allocate Money Appropriately?
Allocating money appropriately is key if you want your budget to be as accurate as possible. You can allocate money appropriately by doing the first step in this article. By analyzing your spending, you can see how much to realistically set for various spending categories in your budget, rather than simply plucking numbers out of thin air. This in turn will help ensure your budget is as accurate as possible.
By doing the work up front of analyzing and tracking your spending on a regular basis, you can get the most out of your budget by ensuring it’s the most accurate possible.
How to Save in Certain Areas
For most families, the big three categories are shelter, food and transportation. By looking for ways to save in those areas, you can boost your overall savings rate. If you could save 5 or 10% in each of those spending categories, you could come up with an extra $100 per month or more. Not bad!
In terms of shelter, it’s a good idea to create a mock budget before you move into a place. List what all your expenses would be outside just the mortgage or rent. Examples of expenses include utilities, home insurance, repairs and maintenance. By doing that, you’re less likely to be blindsided by costs later on. You’re also less likely to find yourself in a situation of being “house rich, cash poor,” with all of your money going toward your shelter costs and little money to save, let alone have fun.
You can save money on food by cooking at home more often and dining out less. You can do this by cooking your meals in advance for the week, so you’re less likely to rely on fast food on those busy weekday evenings. Likewise, instead of buying your groceries at premium supermarkets, shopping at discount supermarkets will allow you to purchase food that’s often just as good quality for a lot less.
Saving money on transportation largely depends on the makeup of your household. For example, if you have children, taking the bus everywhere probably doesn’t make sense; but perhaps instead of owning two cars, you might be able to get away with owning only one. But if two cars are a must, you can try to stretch your vehicle buying dollar further by purchasing a two- to three-year-old used car from a registered car dealer instead of driving a shiny, brand-new car off the lot and having it lose half its value during that time.
These are just a few creative ways to save money. I’m sure you can come up with your own.
What to Focus On: Paying off Debt in a Realistic Way
If you have high-interest consumer debt, such as credit cards, you’ll want to focus on getting that paid off sooner rather than later. If you’re only paying the minimum payment, not only will it take you a long time to pay off, it will cost you a boatload of interest.
When setting a budget, similar to dieting you want to make sure it’s realistic. If you set a budget that’s too strict, you’re setting yourself up for failure. If you want to pay off your debts sooner, you’ll need to find extra ways to earn income, cut your expenses or both.
Again, make sure they are realistic and sustainable. If you’re working a nine-to-five job, working until midnight every night in retail probably isn’t realistic, but working a couple evenings a week until 9 p.m. might be.
Likewise, saying that you’ll spend nothing on entertainment probably isn’t realistic, but making plans to skip the movies once a week and watch a movie at home probably is.
With the extra money you save, you can put it toward debt repayment and reach your goal of debt freedom sooner.