Profit First Blog

Best Practices with Credit Cards – Ep 15 Blog Post

[Adapted from Episode 15 of the Profit First Nation podcast]

Alright Profit First Nation – we need to talk about credit cards and credit card debt.

In this post, we’ll outline how you can properly use credit cards in your business and how you can stay on the winning side when it comes to using Profit First as your cash management system without allowing your credit lines to become insidious.

Some of you may think you already have the solution to credit cards and the sneaky debt that accompanies them: simply don’t have credit cards. And while this sounds like a viable solution (particularly for devotees of Dave Ramsey’s Financial Peace philosophy for personal budgeting), there are several good reasons to maintain open and active credit accounts for your business.

Of course, debit cards are ideal in a Profit First world – especially for those recurring operating expenses like software subscriptions, phones, utilities, and all the other monthly costs you incur as you strive to run your business as efficiently as possible.

But debit cards also have some significant limitations that credit cards do not, and these limitations can sometimes make them impractical for business purposes such as large transactions and international procurement.

Credit cards can also work for you and your business by offering those oh-so-tempting rewards points. Who doesn’t love earning 5x or 10x the number of points when booking a hotel or flight for business travel purposes? But beware, entrepreneurial friend – these rewards can leverage your emotions and cause you to develop unhealthy credit card spending habits “for the points.”

That’s why small business owners must remain hyper-vigilant to avoid the pitfalls of credit card spending. With credit cards, it can be difficult to really feel individual charges. Think about it – when you spend with cash, you can physically see the amount of money diminish with every purchase. When spending with a credit card it is much easier to make a transaction and move on without fully registering charge emotionally.

This is why it is paramount to review your credit card statements regularly (we recommend weekly, but monthly is the bare minimum); it gives you time to process your credit card spending and to acknowledge the very real dollars that are leaving your virtual wallet.

So here are three best practices to help you use your business credit cards like a pro:

Best Practice #1: Do not make any purchase using your credit that has not already been budgeted and pre-funded by an allocation.

Credit cards are not magic expenses that you can deal with later. It’s imperative that you pay your balance every month, and this will be so much easier for you if you only make purchases that have been pre-funded. Essentially, treat credit cards just like you’d treat debit cards.

Best Practice #2: When using credit cards for recurring purchases in the business, figure what that annual spend totals and then divide that amount by the number of allocations you do per year.

Let’s take for example one of the businesses of Profit First Nation host Danielle Mulvey. In our example, this business treats their American Express account like it is a bill to pay with each allocation. Their OPEX expenses for utilities, memberships, software subscriptions, tolls, etc., is $104,000 per year. They do 26 allocations per year (on a biweekly schedule), so they designate $4,000 per allocation to AmEx expenses. ($104,000 each year ÷ 26 allocation periods = $4,000 per allocation)

Best Practice #3: Make yourself responsible for the credit card charge posting.

If you want to limit your spending put the tedious, burdensome work on yourself! We realize this may be old-school, but we manually enter all bank-related transactions into our accounting software (QuickBooks). Doing something like this allows you to catch fraud or odd transactions more easily and to scrutinize your purchases when it comes to OPEX on credit cards.

Now that you’ve got these three tips, you can go forth and use your credit card wisely! Knowledge is power, our entrepreneurial friends!

You can find the Credit Card Best Practice checklist on our website under the Resources tab.

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About The Author

  • Profit Nation


    Danielle Mulvey is your Certified Profit First Mastery "Podcast Guide" and Mike Michalowicz is the author of Profit First. Both Danielle and Mike were members of YEO before they had to drop the "Y" and part of Birthing of Giants at MIT when they were both in their 20's....that gives them a combined 50 years of entrepreneurial experience and counting.