By Gerri Detweiler
“I use credit cards for every possible business expense,” said Stephen FitzMaurice, owner of HandyPortland.com, LLC (CCB#218360), a residential landscape maintenance firm in Portland, Ore. The owner of several businesses, FitzMaurice said he uses one credit card for each business, and his largest business uses two. Like other business owners, he’s learned that business credit cards can be more than a convenient way to pay for purchases.
According to Federal Reserve research, just over half (52 percent) of all small businesses use credit cards on a regular basis. After lines of credit, they are the second most popular type of financing for firms with 1-499 employees.
The following are six reasons to use business credit cards in your landscaping business:
- Make tax time less taxing
Using a separate credit card for business purchases can be a smart way to monitor spending and simplify recordkeeping. You may even be able to deduct interest and/or annual fees if you use your card exclusively for business.
FitzMaurice finds his business credit cards are a great way to track business expenses. He said it is easy to keep track of his spending by simply downloading transactions from his online credit card account. He also appreciates how most issuers group purchases into spending categories. “It’s almost like a free accounting software program,” he said.
- Earn rewards
Scott Lesak, president & CEO of Kasel Rocks Landscape Co. in Allentown, Pa., enjoys the rewards his business credit card offers. “Travel rewards are nice for the family, cash back is nice for the flexibility,” he said. He adds that, “Overall, cash back is my favorite.”
Earning 2 percent cash back on purchases is a primary reason FitzMaurice uses his card for everything he can. “It’s one of the few sources of income that’s not taxable,” he noted. He deposits his cash back rewards into his business account.
Small business credit cards can be a lucrative source of rewards, as issuers are eager to be at “top of wallet” with business owners, who tend to spend more than individual consumers. Rewards such as travel points and miles are also popular— provided you can manage to get away from your business for a vacation. FitzMaurice said he’s done the math and he comes out ahead with cash back rewards.
- Improve cash flow
Cash flow is a constant source of frustration for most small business owners, and landscaping businesses are no exception. You’ll often need to pay for supplies, materials, labor and other expenses before you get paid fully for a job. A large job, while welcome, can quickly turn into a temporary cash flow crunch.
“No matter how well you plan, you’re going to hit times where receivables are higher than income,” said Lesak, who has been in the business since 2004. Although he generally pays his business credit card in full each month to avoid interest, he says it’s handy to have it available for times where he wants to spread a purchase out over a few months.
For example, he may use his credit card, or his business line of credit, to pay off a smaller piece of equipment in the $5,000-$10,000 range over three to four months, which helps to keep cash free for other essential purchases.
When you make a purchase with a credit card, you’ll have as much as 1to 2 months before you need to pay off the purchase, depending on timing. If your card carries a grace period, and most do, you can avoid interest by paying the balance in full each month. This “float” can help your business better manage cash flow by giving you more time to pay for purchases.
- Get superior fraud protection
Many business owners use debit cards because they are a convenient way to pay for purchases without the risk of running up debt. But they may not realize that there is no federal law that requires financial institutions to reimburse customers if their business debit card is used fraudulently.
By contrast, all credit cards— including business credit cards— are covered under the Truth-in-Lending Act, which caps the cardholder’s liability for fraudulent use at $50. Concerned a credit card might lead to overspending? At the end of the week, get online and pay off that week’s purchases. Or consider a charge card, which requires you to pay the balance in full each month. (Charge cards are treated the same as credit cards when it comes to fraudulent use.)
It’s important to understand that if you give credit cards to employees to use, you will be responsible for all their purchases since you are authorizing them to use the cards. Consider setting up alerts or spending controls to avoid a situation where an employee goes on a spending spree and doesn’t come back to work.
- Access financing
Need a quick loan to tide you over? Good luck trying to find a bank that will process a loan in a few hours. Although some online lenders can approve and fund a loan within a day or two, interest rates may be higher than that charged on a typical credit card.
Plus, many small business credit cards offer introductory rates or balance transfers at very low rates— even 0 percent for a limited period of time. (On balance transfers, fees are usually 3 to 5 percent of the amount transferred.)
[Tip: if you carry a balance on a credit card, new purchases will almost always start accruing interest immediately. So be sure to use a separate card for any purchases you plan to pay in full.]
- Build business credit
A small business credit card can help your business build business credit as all of the major issuers report to at least one commercial credit agency, such as Dun & Bradstreet, Equifax or Experian. A few issuers report business credit cards to both the owner’s personal credit reports as well as business credit. By contrast, a personal credit card will appear on your personal credit reports only, resulting in business debt that could impact your personal credit scores.
Gerri Detweiler has been guiding individuals through the confusing world of credit for 20-plus years. Her articles have been widely syndicated, and she is the author or coauthor of five books, including her most recent, Finance Your Own Business: Get on the Financing Fast Track. She is education director for Nav, which matches small business owners to their best financing options and gives them free access to their personal and business credit scores.
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