If you were to start a new business today as a solo entrepreneur or with the assistance of a business partner, there is very little doubt that you would choose to get a business credit card to assist with the expenses of starting up and running a company. However, this may not always be the case if you’re going with a modern start-up company. Start-up companies rely more heavily on investments and may not find the use of business credit cards to be a wise choice. This depends greatly on the nature of the start-up company, the spending style of the business and the investment situation that is involved
The first thing that must be understood here is that there is something of a difference between a new business and a start-up company. Although a start-up company technically refers to just a new company that hasn’t developed a working history yet, it is used more commonly to refer to those businesses that are high-risk ventures typically associated with the world of technology and Internet business. The difference here in terms of the finances is that a new business started by an individual is typically funded by the individual alone whereas the start-up is funded with the help of investors who are interested in making high-risk investments into businesses that may or may not succeed in the Web 2.0 and high-tech worlds.
The difference in where the funding comes from for start-ups is what makes the difference in regards to whether or not there should be the use of a business credit card for the start-up company. Typically, a new business has no choice but to rely on loans and credit cards for funding. A start-up is relying instead on investment money and therefore doesn’t need to use credit cards. Because the start-up is high risk, it is a bad idea to run up a lot of credit card debt that may not be able to be paid off if and when the business goes bust.
This doesn’t mean, however, that a start-up company can’t benefit at all from the use of the business credit card. When used appropriately, a business credit card can aid the start-up if in no other way than the fact that it makes the organization of records and financial receipts much simpler than when other methods of payment are used. If accounting for a start-up is limited to a single monthly credit card bill and a payroll account then very little time and energy needs to be devoted to dealing with the accounting.
The key here is to make only wise use of the credit card if you are using it in a start-up situation. You’ll want to use only a single card and to use it for all purchases. You’ll want to identify in advance who should be allowed to utilize the card to make purchases and how records will be kept. And you should use the investment money for the company to make sure that credit card bill gets paid off in full and on time each month in order to avoid incurring debt for the company.