Managing Finances as a Sole Proprietor: The Role of Business Credit Cards

For sole proprietors, the line between professional and personal expenses can easily become blurry. Your laptop is used for Asana during the day and YouTube at night, and grabbing a coffee sometimes becomes a business meeting.

However, the blurry line can become a problem if your business and personal finances get confused. Sole proprietors who don’t have a clear process for identifying what they spend on their business will have a logistical nightmare during tax season that can lead to missed deductions or penalties. It will also be much harder to get a good read on their business’s financial health, which can lead to decisions that leave them overextended.

Enter business credit cards, which give sole proprietors the power to spend wisely, save smart, and simplify their expenses with ease.

“One of the biggest pieces of advice I give to new entrepreneurs is to separate your personal and business finances,” advises Swapnil Shinde, co-founder and CEO of Zeni. “Having a business credit card, even if you are the sole user, helps keep your books organized, allowing you to better manage cash flow and track your expenses. Likewise, it will be simpler during tax season as your financial statements are strictly for your business.”

Zeni combines AI-powered bookkeeping with a team of financial experts to provide sole proprietors with a one-stop solution for managing finances accurately, efficiently, and in real time.

“In today’s fast-paced business world, sole proprietors need a solution that simplifies expense management, integrates seamlessly with financial systems, and offers a streamlined review process,” Shinde says. “That’s why having a reliable and efficient business credit card is so essential.”

Leveraging the full benefits of business credit cards

Separating business and personal accounts is a key benefit of business credit cards, but it’s not the only one. When you use business credit cards responsibly, it boosts your business credit rating, which is very helpful when applying for a business loan. The better your credit score, the better loan terms and interest rates you can expect.

Using business credit cards also adds an air of professionalism that can make your company more attractive to investors. “Having a business credit card gives you credibility when pitching to investors,” Shinde says. “Clean and organized financial records show fiscal responsibility.”

Sole proprietors who use business cards may also find the rewards offered to them are more rewarding. The cash-back percentages, travel benefits, and welcome bonuses you get from business credit cards often go beyond what you get with personal cards, which means you can get the points you need for your next business flight faster if you focus your spending on your business card.

“The rewards sole proprietors get from business credit cards can significantly reduce overall business costs and provide additional value through travel perks and other benefits,” Shinde says. “Leveraging these rewards can enhance your business’s financial efficiency and reduce expenses in key areas.”

Avoiding the pitfalls of business credit cards

Business credit cards make it easier for sole proprietors to manage their finances, but they don’t make it automatic. You still need to stay on top of spending or risk creating bigger problems.

“Overspending is one of the first drawbacks of using a business credit card that comes to mind, which becomes a bigger danger once you start adding employees to your team,” Shinde says. “If not monitored correctly, employees can make unnecessary or unauthorized purchases, which can result in cash flow problems or financial oversight.”

If staying on top of employee spending sounds like one more task you don’t have time for, make sure to get a business credit card that allows you to set spending limits on cards. You might even consider setting limits on your own card to help you avoid impulse purchases that push you beyond your budget.

Another pitfall to avoid is the interest expenses that come from carrying a balance. Experts say a good APR on a business credit card is 14 percent, which can quickly eat into your business profits.

“If you do not pay off your credit card balance each month, high interest rates can quickly add up,” Shinde warns. “This will cut into the company’s bottom line. For sole proprietors operating on tight margins, these additional costs negate the benefits of using credit for operating expenses.”

Personal guarantees present another pitfall for sole proprietors using business credit cards. These guarantees hold proprietors personally liable if they cannot pay off debt accumulated on their cards.

“With a personal guarantee, a failed business can mean sole proprietors need to pay off large amounts of debt out of their own pockets,” Shinde explains. “That’s why it’s crucial to either look into banking services that don’t have personal guarantees or be very careful with your spending and have a good pulse on your financial health. In short, personal guarantees put your personal finances at risk if the business can’t handle the credit card debt.”

By leveraging tools that simplify financial processes, sole proprietors gain the time and energy they need to build the business they’ve always envisioned. Business credit cards are one such tool, offering rewards while ensuring personal and professional expenses are kept separate.