Much like the name term implies, a business credit card is a card that is used solely for business transactions. It is an incredibly useful tool to business owners, and widely considered one of the essential components of life as an entrepreneur. It helps draw the line between business and personal transactions, and is also is an easy, automatic way to keep track of business expenses. Seeing as this is essentially the defining feature of a business credit card, it seems like common sense to exclusively charge business expenses to it.
However, people are not machines that strictly adhere to rules with no trouble. It is inevitable that, sometimes, personal expenses are charged to the business credit card. If restricted to occasional expenses only, this behavior isn’t necessarily bad or detrimental. It is when this becomes a habit that it creates problems both for the individual and for the business as a whole. To see how pervasive this behavior is, Fundera surveyed 1,000 American small business owners about their business credit card usage.
What they found was that 23% of the polled small business owners had used a business credit card for a personal expense. This includes major and minor expenses, and one-time as well as continuous usage. Considering the high volume of such behavior, Fundera created an infographic detailing these statistics, explaining the various dangers of blurring the line between business and personal expenses, and offering some ways to separate the two.
This 23% was further broken down by region and gender. With respect to region, business owners that were situated in western USA were most likely to have used their business credit cards for personal expenses. This was followed by business owners in the southern USA and in the Midwest. The business owners least likely to have done this were situated in the northeastern region of the US.
The gender breakdown was more disparate, and perhaps even more surprising than the regional differences. A whopping 65% of male small business owners said that they had used their business credit card for personal expenses, while a comparatively low 35% of women said they had engaged in this behavior. The reasons for these differences are unclear, but may well have to do with cultures, identities, and socialization practices among different regions and genders.
These are still very unsettling numbers, and so it is important to consider the dangers of mixing the two kinds of expenses. One of the least severe consequences is that putting personal expenses on the business credit card makes it harder to record and keep track of purely business expenditures. This increases bookkeeping time and may even cause delays within the accounting department. While this is still a serious thing, a worse consequence is the fact that this kind of behavior can affect the business owner’s credit and make it much harder to get loans for the business. It is important to be strategic about allocating funds and minimize personal spending using the business credit card.
Separating the two does not have to be a complicated process – in fact, there are many simple ways to try and achieve this. For starters, it can be very helpful to have a clear-cut way to differentiate business expenses from personal expenses. Being able to classify a transaction as one or the other is a great first step to knowing which credit card should be used. Then, when shopping for both business and personal items at the same time, it will be easier to separate the transactions and receipts. An additional measure that can help is to make sure that both credit cards look different from one another. Keeping them in different spots is also a good strategy that makes it less likely that the wrong card will be used accidentally. Finally, creating a budget for company expenses will not only ensure that the business spends a reasonable amount of money, but will also help control personal spending using business funds.
Taking such simple steps can go a long way to minimizing bookkeeping time and maintaining a healthy credit. While it can be tempting to charge personal expenses to a credit card that feels detached from the business owner, the consequences for doing so are not worth it. It is also easy to get into the habit of making such expenditures, which can snowball quickly and destroy the business. There are several advantages to using a business credit card, but it is essential to be responsible when doing so in order to make the most use out of this resource.