One of the first rules when starting a business is to keep your personal and business expenses separate. The reason for this is the same as for separating between your personal and work life. *Mixing the two is never a good idea. *Here's why:
Companies and business entities are formed to generate profits and high returns on the capital invested in them. They do that by using their available funds efficiently. This means they need to spend on things and activities that will add the most value to the business. Spending 500 Euro from your corporate credit card on drinks or a lavish dinner with your friends hardly meets that criteria. In fact, it could lead to the exact opposite effect.
Spending company money on personal expenses can have an adverse tax effect on your company. Tax authorities rightfully recognize only expenses related to your core business activities as tax-deductible. Having material amounts of personal expenses on the company’s books can trigger tax audits and penalties.
Performance KPIs and business analytics rely on the quality of data in your systems of record. Booking expenses that are not related to your business in your accounting system will mess up the reporting data. This can distort your business analyses and can lead to the wrong conclusions.
Investors and lenders of the company will most likely be furious when they realize someone is using the money they have put in the company for personal benefits. This could be followed by legal action against the company and a formal request for immediate payback of the investment or loans granted. Loans and investments usually have covenants and restrictions on the usage of company money.
If you are the owner of the business, the next step will be to schedule a meeting with your accountant or tax consultant and discuss the available options to deal with this. Note that delaying such a discussion may limit the number of workarounds available.
If you are an employee, the next step (after finding and retaining the receipt for the expense) is to notify your direct manager. You will need to follow company protocol for further actions.
Companies usually have incorporated expense policies that cover incidents when business cards are used for personal expenses. Such expense policies will also have a detailed description of what company funds can be used for, what to do in cases of misuse, and who should approve business expenses. This could be your direct manager for up to a certain threshold amount or the CFO above that.
Employees will often sign a cardholder agreement before receiving a company credit or debit card. Cardholder agreements empathize with the fact that each euro/ dollar/ pound loaded on the card is owned by the company and should be used for business purposes only. Cardholder agreements can also set specific terms and conditions of usage and/ or refer to the company expense policy.
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