Many budget and finance blogs urge readers to do without credit cards, however, entrepreneurs have different needs and can't really do without credit. In fact, according to an article by Wharton business school, most entrepreneurs are funded through a combination of credit card debt, personal loans, and second mortgages. Artists and art entrepreneurs can be especially vulnerable to cash flow problems with long lead times between creation and sale.
If you're the type of person with spending discipline issues, you probably shouldn't be an entrepreneur. If nothing else, having a business credit card make it easy to keep track of art supplies, office products, artist lunches, and other business expenses that can be written off at the end of the year.
Managing Money On a Small Budget
Success as an entrepreneur can mean staving off failure just long enough to see success. Budgeting and managing money are essential to keeping a business afloat. Managing money while on a tight budget can be difficult, but there are a few ways to cut costs while allowing your business to grow.
If you have multiple credit cards or lines of credit (even in your personal budget), make sure you pay off the ones with highest interest rates first, and use that credit for short-term payables. Interest rate costs can add to your business costs significantly.
Save your credit card receipts and ATM stubs each month and go over them carefully. Getting a clear idea of where your money goes can really help in developing and sticking to a budget. It can often be the little things – morning lattes, a lunch splurge – that can throw a budget off the rails.
Spend money on the business needs that will have the most impact on your growth, pinch pennies on everything else. If your business needs a slick website to look serious, spend the money on a professional design. If your growth depends on networking and referrals, then you'll be spending money on business lunches and happy hours. However, expenses like fancy offices, and the latest smartphone? Completely unnecessary.
Best Practices for Credit
Consider getting a credit card offering rewards. Reward cards do just what they say. They offer rewards on purchases in the form of airline miles, hotel stays, and the best kind: cash back. Most cards have restrictions on what kinds of purchases qualify for the highest rewards, and offer higher rewards for purchases in certain categories or from partner companies.
Vanishing lines of credit are one of the biggest complaints of small business owners. As an entrepreneur you count on your credit each month. Unfortunately, credit cards can change your credit limit with no notice and no reason. Before choosing a credit card, ask about secure lines of credit – and make sure that your contract includes language stating that you will be notified of any changes to credit limits before they occur.
Avoid annual fees and hidden account maintenance fees. These can be killers. Many rewards cards don't charge annual fees the first year, and then hit you with fees around $100 the following year. Try to stick with cards that don't have annual fees or at least offer immediate rewards in an amount over the fee. Read about one of our favorite option, Chase Ink card review which has no annual fee for small business owners.
Calculate interest rates against rewards and annual fees. Business credit cards should charge lower rates than personal credit cards. Sometimes, no-fee cards can have higher APRs than cards with annual fees. By monitoring your business spending, you can determine what kinds of reward cards make the most sense. For instance, if you travel for business a lot, a rewards card offering airline and rental car miles might save you more money than a cash back card.
If possible, route both outgoing expenses and incoming payments through the same account so that it's much easier to calculate cash flow and write off losses on taxes each year. In the event of a dreaded IRS audit, you'll be much better off being able to show that you track and separate business and personal expenses.
Consider a line of credit instead of a credit card. Credit cards can have high annual interest rates. If your business is established or you have assets to offer as collateral, you can usually ask your bank for a line of credit attached to your business account.
Stephanie Phillips is a business blogger at CreditDonkey. She helps small business owners evaluate business credit card offers to find the right one for their business. We hope you've found this post helpful as you get your art business off the ground. If you've had success with one particular type of card or have advice for other entrepreneurs, let us know in the comments!