How Small Businesses Budget with a Credit Card

So, we asked the experts: how do you budget with a credit card? In response, we got some great small business credit card tips that will help you to manage your cash flow while taking advantage of all the perks a business credit card can bring to your business.

Do Credit Cards Help in Budgeting?

According to Andrea Woroch, money-saving expert at AndreaWoroch.com , the answer is a big yes! “A credit card comes in very handy as a small business owner. Not only does it make it easier to manage and organize your small business spending in one place and keep it separate from your personal financial accounts, but it also makes organizing expenses when filing estimated taxes a breeze.”

In addition to all those benefits, Woroch shares that most credit cards provide expense tracking tools for free, so “you can see how much you spend in any one category, which can help you make better decisions with your spending. Not to mention though, credit cards can also benefit your small business thanks to the valuable rewards offered such as cash back.”

With free tracking tools for spending, statements that itemize expenses, automatic financial credit building and help with keeping business and personal finances separate, credit cards offer a lot of budgeting benefits.

How Do You Budget with a Credit Card?

When it comes to the nitty-gritty of how to budget with a credit card, these experts tips will help you make the most of your business credit card without falling into its traps. According to Ted Rossman, Senior Industry Analyst at CreditCards.com , the major reasons businesses should budget with and use a credit card are because “the rewards can be lucrative (both sign-up bonuses and everyday spending rewards), credit cards offer better fraud protections than other payment methods and it's hard to beat the convenience.”

Here are some expert tips on how to budget with a credit card.

Look for a Sign-Up Bonus

Most credit cards offer a sign-up bonus. Generally, the offer is based on spending a certain amount of money within a certain amount of time. Woroch suggests, “If you’re planning to make a big business purchase, getting a new credit card can help you earn free cash or miles for a free trip.”

If you’re already planning to make a large purchase, that’s the perfect time to sign up for a new credit card and make use of the sign-up bonus to benefit your business. And, you'll find there are even some great business credit cards with no annual fee .

Pay in Full, Avoid Interest

While a credit card is a useful tool to deficit-fund your business, in general, you want to avoid paying interest on your spending. Alex Miller, founder and CEO of UpgradedPoints.com says, “If you don’t use your business card wisely, you could end up paying interest or purchasing more than your business can actually afford.”

Always keep in mind that budgeting with a credit card doesn’t mean unlimited spending. Budget with your small business credit card with the intention of paying it off in full every month.

Deficit-Fund a Business

While most credit-card savvy users recommend only spending on your credit card what you can pay off each month, a business credit card can actually be a good way to deficit-fund your business during the early days. “Credit cards are easier to qualify for than business loans, and you're not giving up equity in your company like some other funding methods,” says Rossman. But he also warns, “just make sure that you don't rack up credit card bills you won't be able to pay back.”

While a credit card is easier to get than a loan, and for some, it is the only option to get a business started, it’s important you go in knowing the risks. “While credit cards can be a quick and easy way to fund your business, it's very important to pay these bills on time and in full,” says Rossman. “Paying late can lead to fees and ding your credit score, and carrying a balance comes with an average interest rate of 14.22 percent . That can add up in a hurry.”

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If you are thinking of going the route of deficit funding your business with a credit card, look for a card with a good sign-on bonus and one that has a low- or no-interest rate for a set period of time. Then, commit to paying off the balance before interest starts accruing. If you do accrue credit card debt , have a plan for paying it off as quickly as possible.

While deficit funding your business with a credit card is a budgeting option, it should be used as a last resort and sparingly.

Separate Business and Personal Expenses

Another important budgeting feature that you get with a small business credit card is the automatic separation of your business and personal expenses . This is critical, according to Woroch. “Be careful not to mix business with personal purchases. Not only will it be confusing to figure out which expenses are for what when it’s time to file taxes and pull profit and loss statements, but one wrong move can result in fines in case you get audited.”

Maintaining separate financial ecosystems for your personal money and business money makes operating a business simpler and keeps the IRS happy.

Turn on Notifications

An important tip you can use to track spending and manage your budget with a credit card is to turn on notifications. “To control spending, most business credit cards come with alert features where you can be alerted to purchases at specific merchants, over certain amounts, etc., which all aid in the budgeting process,” says Miller.

Choose the Right Credit Card for Your Business

When it comes to budgeting, choose the right credit card for your business. Not all credit cards are created equal. You want to evaluate the available credit cards and find one that matches rewards with your unique spending habits.

“Make sure you get a card that will offer the most rewards for the types of purchases you make for your business on a regular basis,” says Woroch. “A credit card matching tool like GigaPoints can help— it analyzes your spending and shows you which credit card will give you even more money back. The extra cash back can offset ongoing business expenses.”

Sign Up for Cash-Back Bonuses

Speaking of cash back, some credit cards offer cash back for specific purchases and retailers. These bonuses can help offset your business spending.

But, there’s more. Woroch says, “linking your business card to a cash-back app like Dosh can help you earn extra money back on purchases made at participating retailers like Walmart, Instacart and even Dunkin Donuts.”

While you’re buying things with your business credit card, you’re essentially getting some money back for free. When it comes to budgeting, free money is always welcome.

Watch for Bonus Rewards

In addition to the usual cash back and rewards offered by your business credit card, often they will run specials where you can earn more cash back at certain retailers during a given month. But, you have to watch out for these bonus rewards. Woroch says, “You may get an email, but don’t assume that means you automatically qualify — in fact, usually you have to sign in to your account and opt into the bonus reward offerings in order to start racking up the extra cash back.”

While you shouldn’t go out of your way to spend money just to get rewards, Woroch suggests using the cash back and bonus rewards as a way to plan your spending. "For instance, say you can earn triple the cash back by shopping at Office Depot or eating at Panera Bread — well, you could plan to buy your office supplies or new laptop during this promo and take a client for lunch to Panera to truly benefit from the reward offerings.”

Have Separate Cards for Different Employees

An important budgeting hack for a business credit card is that you can track individual spending through multiple cards. Miller suggests that each employee who will be spending money for the company should have their own card. This makes it simple to track spending and gives you the ability to set a spending threshold for each employee.

Create Credit Card Policies

If you do have multiple employees and multiple business credit cards, it’s critical to your budget that you have spending policies in place before giving out cards to employees. You should create policies “that state who can have access to a business credit card and to ensure that there is a review of all purchases made continually,” says Tom Thunstrom, Business Finance Analyst at Fit Small Business . “This ensures that the card is being used properly and also for necessary purchases.”

To keep things simple for your budget, you want to have as few credit card holders as possible and have clear spending policies to avoid potential problems.

Budgeting with a credit card is different from using a debit card or checks because the money isn’t immediately removed from your bank account. But, in actual practice, if you pay off your credit card every month, it’s not actually that different. A credit card differentiates itself in the benefits it can bring to your business budget through sign-up bonuses, tracking tools, cash-back rewards and separating your business and personal finances. Now that you know the expert's tips for how to budget with a credit card, you just need to find the right credit card for your business so you can reinvest in your business and grow.