Small business financing company Fundera released the results of a survey assessing how entrepreneurs make purchases for their companies.
WTOP said on Monday (July 30) that Fundera’s report revealed how common it is for small business owners to use their business credit cards for personal expenses, a practice that experts warn can lead to financial and compliance-related consequences.
According to Fundera, 23 percent of surveyed small business owners admitted to mixing personal and business expenses on their commercial cards, with meals and small-value purchases the most common personal transactions landing on business credit cards.
Researchers pointed to a lack of adequate cash management strategy as a top reason why business owners make this mistake. But some business owners simply don’t think to make the distinction between personal and business purchases, Fundera noted.
“Some people start out as an entrepreneur part time, and so they are moonlighting, and working on the side from their actual job, and in doing so they are not actually thinking about it as being an actual business,” said Fundera’s vice president of content, Meredith Wood, in an interview with the publication.
Fundera emphasized that business owners can run into trouble with tax compliance by mixing personal and business purchases on their company cards. At the same time, this mistake also prevents business owners from adequately managing their business finances and gaining clarity into how their companies are spending money.
According to Wood,“there is no reason not to” separate these spend categories. “There are many other benefits to having a business credit card. There are a lot of bonuses,” she said. “There are a lot of ways to earn points or cash back that can go straight to your business. And, generally speaking, businesses spend a lot more money than individuals do.”
Small businesses have been warned for years not to mix personal and business spending on a single card. Research from Citizens bank, published in 2015, highlighted how this issue can also appear in SMBs’ banking practices, finding that 31 percent of small business owners surveyed said their businesses don’t make enough money to justify opening a separate checking account. More than a quarter surveyed said their bank accounts are used for both business and personal finances.