If you cannot decide whether to fund your business with cash or a credit line, get in touch with an accountant. Your fiscal standings play an important role in the cash vs. credit debate. Here we will look into why business credit cards are a fitting line of credit choice of finance rather than plain cash.
There is no regulation by the IRS that forces you to switch to cash-related accounting. In fact, when preparing for tax returns, a credit line is much more suitable because business credit card statements categorize all the expenditure of business aspects accordingly. This makes things much simpler and efficient for the in-house small business accountant to prepare for tax season.
A small business may start small but its main objective is growth and with smooth operations it does grow in time. Maintaining an inventory of products, keeping track of revenue receipts or the transactions on credit can become a complex thing. It might have been okay using cash to finance your operations when you started out as a business owner but as the business becomes complex you need to establish a line of credit for accruals accounting.
Many skeptics believe that a good entrepreneur takes great interest in the minute details of his business’s fiscal situation and the options provided to them. This is typically the work of an accountant, but in the end it’s the owner who needs to make all the strategic moves. A business credit card system gives you a synopsis of the entire financial story. With the quarterly reports provided by the company and the accruals accounting, keeping track of expenses becomes easy.
Some states legally require small businesses to establish a line of credit. This means that all businesses that deal with your small business are doing the same. The government regulates this to boost credit transactions in the economy.
The most important reason to choose a business credit card over cash would be if your entrepreneurial dream is being crushed by the lack of capital. No matter how small or less complex your business may be, unless you don’t have cash in hand from savings or a trust fund you will resort to a line of credit. A business credit card is the best source of credit you can have. The banks might reject you for being a rookie in the business game, so a business loan is out of the picture but a small business credit card will see you through your initial days of business operations.
Using a business credit card as a line of credit helps keep track of finances. Cash accounting is no doubt a basic, more primitive system and thus is more prone to human error in tracing the cash back to where it started, but thanks to accruals accounting, using a business credit card will aid in keeping track of your expenses.
Credit card companies are offering special credit cards, such the Capital One Business Card and the Chase Business Card, that are specifically fashioned for small businesses. These cards are gaining rapid popularity in the market due to their numerous benefits.
All small business credit cards offer advantages like reward points, airline miles, more cards for employees, and savings on business supplies. For many businesses in need of financing, these cards offer very low or zero interest rates. None of these offers are available for personal credit cards.
Addressing The Unpredictability Of Business Revenue
Businesses do not make a consistent amount of money every month. Keeping this mind, many credit card companies offer discounts for early payments. Some companies offer deals where there is a temporary time period for the small business to pay back their credit without little or no interest.
While it may be tempting to use your personal credit card for your business expenses and build up on the reward points, it is not recommended. Although you can carry out business transactions with your personal card, a business credit card is simply the better alternative because of the following reasons:
It Adds an Air of Legitimacy to Your Business
When you use a business credit card for business transactions, you appear professional in your approach. Whether your organization is small or large , using a business credit card is standard practice.
It Allows Greater Flexibility
As your business grows and its operations increase, you might want some of your employees to have access to the card. More importantly other workers can track the business’s expenses without having to look through your personal expenses.
It Makes Budgeting Easier
Using a business credit card, business owners can monitor their employees and coordinate the budget by practicing their flexibility to limit how much their subordinates are spending.
It Makes Record Keeping Easier
The quarterly annual statement provided by the credit card company will classify your expenses into respective sections. This categorized information makes it easier for your accountant to review the financial position of your business and to prepare tax returns at the end of each year.
It Makes Over-Spending Difficult
Chase business cards offers a client credit limit depending on their credit history and income, and does have a number on how many cards you can have. In this way, using a business credit card will make you more careful about your expenditures.
The year-end economic report of 2012 found that credit card jumped up to the top of the list of sources of finance. National small business association observed that over the last year around 31% of small business owners switched from loans to credit cards to finance their expenses. Legally though, the Business credit cards are not as yet covered by the credit card act of 2009.