💯 💯 💯 "In order to manage your business with as much ease as possible, you need to be practiced in a broader concept of finance, which is to separate your personal money from your business money."
EP 53: All freelancers and small businesses have expenses to account for at the end of the year, and while there are numerous systems creatives use to organize their finances, one thing runs true; separating your personal and professional expenses is key to good management. In this episode, I break down a few key differences between business credit cards and personal ones, and why it's so crucial for good organization.
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Michael Der 0:02
You're listening to Artrepreneurs, a podcast that inspires photographers and visual artists to live their best creative lives. My name is Michael der and I am a full time photographer with nearly 10 years of experience in the freelancing world. And I'm sitting down with an amazing community of visual artists to talk about process, business, and the lessons that have helped them grow. So let's get to it. Artrepreneurs starts right now.
What is up thank you so much for joining me today. Happy New Year, folks just in advance if you're tuning in for the first time, my name is Michael der I am your host here to ignite some juice into your freelancing and entrepreneurship journey. And today, I am so excited, so proud, so honored if I may, to provide you the 53rd episode of entrepreneurs, thank you for your support, we have not missed a week, which is a very big deal to me, because honestly, I didn't know if I could maintain that level of pace when I actually started the show. And so I sincerely celebrate this achievement with you whether you've been with me for all 53 episodes, or if you're tuning in for the very first time. And I think even mentioned this all the way back in episode one, that you and I are in this together, okay, so we are going to help each other I want you to get better because that's the whole point of the show, is to give you some of the tools and the inside to build your creative business not only a little faster, but with a little bit more thought and a little bit more care to help you build the best creative life that you can. And I already know that you make me better. Because just by doing these episodes and knowing that there is an audience, no matter how big or small it might be, it is effectively you holding me accountable and keeping me sharp. So from where I am standing, you and I we totally did this together, that is not lip service. Now I understand that this is a bigger deal for me than it is for you. But one last little thing about hitting the 53 to 53 week benchmark that I set for myself is that at the very least, I hope it inspires you to find some sort of consistency in your goal setting. Okay, so whatever it might be, whether it's a quarterly newsletter that you want to send to your leads, a monthly project that you want to tackle on your own, or a daily journal entry that you want to dive into, you know, your priorities are your priorities. So I just wanted to encourage you to be consistent with your top priorities, because I think it can really showcase what you're capable of when you put your mind to something.
Okay, so now that we've gotten that out of the way, let's get into the subject of the day, which is all about business credit cards. Now, I have this topic slated for later in the year. But I thought, you know, why not give you some insight into kicking your year off right now in a potentially more organized way, as opposed to maybe doing this episode mid year when your shoe box receipts system is already half filled? And so the first thing I'd say before getting into the micro details of what business credit cards offer, let me first try to answer the why. Why is any of this important? Well, I believe that in order to manage your business with as much ease as possible, you need to be practiced in a broader concept of finance, which is to separate your personal money from your business money. And this is a blanket piece of advice. So regardless of what business structure you choose to establish, whether you're a full time sole proprietor or any form of corporation like an LLC, or an S corp, or even if you're just dabbling with the occasional freelancing side hustle a couple times a month. This is business 101. You want to avoid commingling your personal and your professional funds so that you can avoid any type of disorganization during tax season, as well as limit any potential legal damages that you may face in a lawsuit.
And so there are a few effective ways to really protect yourself from these potential speed bumps. One, you can incorporate your business to protect yourself from liability. And we'll talk about corporate veils down the road, too, you can open up a business bank account that's going to organize other business finances, like your income and your salary, which we'll also talk about in another episode. And then three, you can use a business credit card which is going to help separate your business expenses from your personal lunch, which we're going to talk about today. So in this episode, we're going to address what a business credit card is, how it differs from the features of a personal credit card, and ultimately clarify whether it's the right move for you to get one.
So what constitutes as a business credit card. Alright, so a business credit card is a dedicated car to cover the expenses used by freelancers, businesses and side hustlers, just like you and me. Now it basically acts like a personal credit card in the fact that you use the card to pay for expenses, and then you pay those expenses off, you can earn rewards like a personal credit card, and you can accrue fees and interest just like a personal credit card. Now what separates the two cards are as follows.
Number one, a business credit card build business credit as opposed to a personal credit card, which obviously build personal credit. Now in Episode 41, I did break down the essential elements of a credit score. And if I had to wrap up the essence of what that credit score means just to catch you up to speed. It is basically a numerical representation of how trustworthy you are as a borrower of money. In other words, how reliably do you engage with and pay off your debts. The higher your score, the more trustworthy you are, and as a result, you're going to receive greater benefits on a number of financial exchanges, such as approved loans, better rates on your mortgage or your car insurance, lower credit card interest, higher credit limits, and even better signup bonuses. So a business credit card acts very similar, but instead of building up your personal debt history, it is building up your business debt history to determine whether your company can be trusted by the way it manages money. Now this may not come into play for you early, but you never know when you might rely on it as your career grows as the s
He states having access to business credit can be a lifeline for your business. It enables you to obtain the capital you need to expand cover day to day expenses purchase inventory, hire additional staff and allows you to conserve the cash on hand to cover your cost of doing business.
Number two business credit cards typically come with much higher credit limits than personal credit cards. Now this happens because the cards are calculating three factors at once your business revenue, your personal income, and your current credit score, along with the fact that businesses typically require more latitude in their budget, which these companies are fully aware of. Now, being a professional photographer does not come with the monthly expenses of a typical consumer business like inventory, payroll and shipping costs. But make no mistake photography isn't cheap either. And it doesn't take a whole lot of imagination to see the value in having an extra 10 to 20 to even $30,000 to work with. Now, there were several times early in my career where my credit utilization was so high because not only was I putting my personal expenses on it that included phone bills and utilities and gas, but I was also fronting travel expenses for my jobs like flights, rental cars and hotels. So each month it was very common for me to see a few extra $1,000 worth of purchases go on my card. Now thankfully, I did have enough credit limit on my card at the time. But make no mistake, I was Flirting with Disaster, and I was certainly ruining my credit score because of the high utilization rate. So having a business card at the time would have provided me a buffer to accommodate my growing expenses.
Number three, many business credit cards will not report activity to consumer credit bureaus. Whereas personal credit cards always do. This means depending on what credit card you apply for, because it's not a universal truth. But specific to some cards, your debt, particularly your delinquent ones may not have any impact on your personal credit report. This can be a huge relief to small businesses with high startup costs large overhead and growing inventory when the customers are not yet there. So consider this. Let's say you dropped $15,000 on new photography, gear software, personal projects and workshops. If you were to use a personal credit card and not pay that balance off in full, you may see your personal credit score drop substantially. No had you use a business credit card because you have an effectively separate line of credit. The three major credit bureaus that collect and store information about you are not going to be able to see that unpaid balance, which means your personal credit score won't be impacted. And so the added benefit is that it's an effective way to raise your personal credit score merely by purchasing equipment and high expense costs on a business credit card versus a personal one. But with that being said, it is never in my opinion, a good idea to buy things your business simply can't afford. So just because you might receive some relief from personal credit hits, doesn't mean it's smart business to purchase everything your heart desires. So don't forget, purchase what your business needs, and then more importantly, purchase what your business can actually pay off.
Now you might be asking, does a small business like myself have to use a business credit card? And the answer is no you don't you don't have to use one at all, you can absolutely use a personal credit card for your business expenses. Maybe you're already have five or six open lines of credit already. And you don't want to apply for another to convolute your overall financial system. Maybe you're just afraid that if you had a credit card that doesn't report to your personal credit report that you'd somehow go open season on all gear shopping. So whatever your reason, that's totally fine. I have used personal credit cards for my business for years. What I would suggest though, is to simply dedicate one of them solely as your business card. And this goes back to organization, it is far easier for your bookkeeping, which is crucial come tax time and deductions to have all your expenses on one card separate from your cards that you use to pay for groceries or clothing and Christmas presents. And if you are going to use one of your personal cards, I just advise look into the rewards that your cards offer and see if one of them provides the most amount of benefits to the typical expenses in your business. Also be sure that you're not choosing the credit card that has the least amount of credit limit.
Now you may be wondering what business credit cards do I actually recommend and to be honest, I'm not sure if that's a road that I want to go down. For one I'm not really a review guy and to with financial products, I think it's kind of worth looking into on your own. And so in the end, I hope this advice, just a little bit of a spark in you to do your own digging. Do your own research on whether this is a tool that you want to use for your business. And I think that's the crux of this whole episode. How do you want to conduct your business? Do you want to play that credit card shuffle game hacking five different cards to max out 2% points across both your personal and your professional expenses? Well, if you want to play that game, your organization has to be that much more onpoint I am by nature a far lazier accountant, I don't want to create spreadsheets, I don't want to save receipts I don't want to make notations on what purchase was what all I care about is simplifying the process because you'll find out back end financial management is already enough of a pain. So why add more fuel to the fire. Alright, so that is going to wrap things up for me today folks, I hope this gives you a little bit of food for thought and I really can't believe that we made it to the end of the year. Happy New Year to everybody. Thank you so much for your love your support. If you've gotten anything out of the show, if you have two minutes just leave us a review on Apple podcasts or on our site at Artrepreneurspod please. A small gesture can go a very long way. Thank you again so much for your time your generosity and your support. This is Michael der signing off for the last time of 2021 Have a great rest of your week, everybody And I will see you next year.
Hey everybody, this is Michael der thank you so much for making it all the way to the end of the episode. I hope you'll follow tag and engage with us on our Instagram account at Artrepreneurspod. We've also launched our website Artrepreneurspod.com. It is the central hub where you can sign up for our newsletter, read our blog posts, send us voicemails, and even access discounts from our amazing affiliates. It's also the perfect spot to shout out Artrepreneurs with what would be an immensely appreciated five star rating and review. And if you're feeling extra generous, you can even make a small donation that's really going to help accelerate the growth of this podcast. But no matter what you do, folks, I just want to say thank you so much for supporting. There are a lot of great photography podcasts out there and I am just grateful to have gained your trust even for a moment. Take care of you will see you next week.
Transcribed by https://otter.ai