Credit cards: What you need for your business

Does your business need a credit card? Although I’ve definitely heard of many arguments against having a business credit card, I do think that one is helpful to have in today’s internet-based business world where buying online is fast and convenient. Between payroll, Paypal, and credit cards, I rarely need cash in my business… and it’s probably the same for many of you.

So, if you run a business, how can you find a good credit card to use? In an article posted at BusinessInsider.com, article writer Shira Levine gives 8 things to consider when you get a credit card for your business. It’s a good list, even if there are no surprises here. You should read the full article but basically she advises that you think about:

1. Reward programs
2. Fees
3. Fraud Protection
4. Time
5. Online Access
6. Credit Unions
7. Signature vs. PIN
8. Acceptance

From my own experience, I would also suggest the following:

• Look for just one credit card; don’t get a big stack of cards.
• Keep the credit limit low. A thousand might be sufficient for most businesses, or if you travel, maybe a couple thousand.
• Put a little money onto your card even if you don’t owe anything. A small “bank” of a couple hundred is sometimes a nice cushion to add during good times and can help out when things get tight.
• Don’t just use your personal credit card, even if you are a sole proprietor. Keep things nice and simple and separate. It’s easier to monitor.
• Schedule 5 minutes every month to double-check your purchases: Make sure you got what you paid for and make sure that it’s providing you the value you want it to provide.

Jessica Routier, IAC-EZ

What do you spend your money on?

IAC-EZ clients tell us that they sometimes like reviewing reports – like the Profit & Loss Report – that tell them what they’ve bought and how much they’ve spent. But sometimes they don’t like to review them because they can often reveal that we’ve spent more than we intended to on things we may not really need!

It’s no different than going to the store and feeling great about your purchases until you get home and look at the receipt one more time.

Recently, I stumbled upon an info graphic (it was referenced in this blog at AllTop but the entire graphic originated at ripetungi.com). The graphic, although focused on the UK, is a fascinating study into how much people spend and how much of that spending was in cash.

Having traveled to the UK, I can anecdotally assert (and this image backs up my assertion) that Americans use credit cards far more frequently. With that one exception, I suspect that spending habits are fairly similar across national boundaries.

How do your buying habits line up? If you were to do an info-graphic of your own spending – both personal and professional – how would it look?

While seeing numbers on a Profit & Loss Report is sometimes a wake-up call, they’re just numbers and it’s easy to overlook their comparative sizes. But when you look at the overall spending on a graphic like this that incorporates size, it becomes far more telling… and perhaps even alarming.

Jessica Routier, IAC-EZ

Uncle Sam to You: “Thanks for the loan”

When you need to borrow money from a bank or lending institution to buy your house, you get a mortgage. It’s a loan and you pay that money back over time with interest.

When you need to borrow money for a car, you get financing or a bank loan. Both are loans and you pay that money back over time with interest.

When you want to buy something on credit, you pull out your credit cards and buy it. Guess what. Your credit card is a kind of loan and you pay the money back with interest.

Throughout the year last year, you paid taxes to the government. After filing your tax return, you might be expecting some money paid back to you. Guess what. That’s a loan, too. It’s a loan you made to the government. Now here’s the bad news: It’s interest free. You overpaid and you’re getting your money back. But it was yours to begin with.

At this time every year, I go on a mission to tell people not to get too excited about their tax return. They didn’t get money from the government. Instead, the government paid them back what they had overpaid.

So, when you get your money back from the government, you should do three things:

First, you can celebrate (but just make sure you’re celebrating for the right reasons).

Second, you should do a few things with that money (and this article gives some good suggestions).

Third, make arrangements to reduce the amount of taxes you pay through the year so that next year you don’t get as much back. The perfect tax return should be one where nothing is owed and nothing is refunded – “absolute zero”, so to speak.

Jessica Routier, IAC-EZ

Funding your business

“You have to spend money to make money” is something that I heard from the managers and owners in my earliest jobs. What I never asked at the time, but found out the hard way when I wanted to start my own business is: Where do you get that first bit of money to spend so you can make more?

Maybe you need some seed capital to buy some inventory or perhaps you need to pay for some advertising space.

Here are some ways for you to raise capital for your business:

1. Fund it yourself with savings. This is a common way to fund your business and you tend to watch these dollars closely. However, there’s a lot of risk, too, since you’re spending the very cushion you’ll need to rely on if you fail. If you do this, you might want to put your savings into 2 tiers – one tier you can borrow against and another tier that you refuse to touch, “just in case”.
2. Fund it with loans. This in itself is an entire spectrum. Some loans, like a small business loan or a renegotiated mortgage can give you some money without necessarily stinging you with high interest or massive payments. Credit cards are an all-too-common way to fund a business and the occasional success story of a credit-card-funded business does a disservice to the entrepreneurial community. Loans might be necessary but a cautious course is needed.
3. Fund it with grants. Grants can be a nice way to get money for your business but it isn’t always easy to get them. There’s lots of competition and you sometimes can spend an inordinate amount of time complying with grant requirements. I would suggest that this is a good bonus that you can use to catapult your business to the next level but shouldn’t be your primary capital injection model.
4. Fund it with revenue. This one makes sense once you start earning revenue, and I hope that you always set aside some money for operations, some money for a cushion, and some money to invest in the business. But if you don’t have a lot of revenue, or if you don’t have any at all, obviously this may not be a choice. (However, you might consider revisiting your business model to start smaller, just to get some cash flow. Then grow from there).
5. Fund it with investors. Investors represent a great way to fund the business because they can provide capital plus their expertise. However, there are many challenges including: You don’t want to fund it with family and friends because that is a recipe for disastrous relationships. You want to be careful how vocal your investors get because you can spend all your time worrying about them rather than running your business. And, you need to watch what you commit to because you might end up giving up too much equity or getting saddled with bond payments you can’t afford.

There are other ways to fund business growth and I found some interesting ones here. These aren’t all perfect ideas for everyone – you’ll need to make sure they match your business – but you might find one that gives you the money you need to make more money!

Jessica Routier, IAC-EZ