Managing a business without funds hobbles your competitive advantage significantly, leaving you at the mercy of every crisis. When I started my company, it was a very bad recession and money was hard to come by. The company grew as the economy got better, but I was not able to make the strides I wanted to until I had access to real capital in the form of debt.
While you may miss opportunities that require a financial investment, your rivals race ahead growing their slice of market share. Unfortunately, simply keeping a healthy expense account isn’t enough to retain an edge. Your company’s credit profile is one of your greatest assets: It lets you access better lease terms and loans while ensuring that resources are at arm’s length.
Crises simply cannot be weathered without money, but debt can create its own catastrophe. The goal of credit should thus not be to create static debt, but to manage it responsibly enough to build a squeaky-clean profile. To achieve this, payments need to be made on time or 30 days ahead of their due date.
A comprehensive credit profile will give clients and investors core information when researching your company’s reputation.
Working for a Better Score
Entrepreneurs often use credit cards to get beyond startup status, but they’re only a useful tool if used with discipline. Your business is a separate entity, and it needs to be nurtured as such. Personal credit lines are tempting to use, but building your business’s score requires credit in its name. You can improve your profile by:
- Asking your suppliers to report your credit history to major credit bureaus.
- Checking your profile for accuracy regularly. Sometimes stuff goes unseen — for example, small bills or even bills that do not belong to you. By taking time each month to monitor your credit, you can save a lot of time and money by catching something early.
- Working on improving weak areas of your profile.
- Taking advantage of growth opportunities. Your business’s growth is reflected in your score.
- Signing up for alerts so that fraudulent activity is caught immediately.
Missed opportunities can be catastrophic in a cutthroat marketplace. The inability to promote yourself during your most profitable season can cost you thousands — and a significant chunk of your demographic. Similarly, not having the power to leap at a supplier’s offers can cause your revenue to dwindle. Disasters are unpredictable by nature, so emergency funds are critical too. All of these situations can be handled with credit.
Loyalty Programs
Credit card reward points can reduce your expenses dramatically. As with cash, there are smart — and wasteful — ways to spend them. Points are often transferable to alternative loyalty programs, which helps you to allocate them in a way that suits your needs.
Typical credit card interest rates are between 13 and 20 percent. If you’re working on the basis of return on investment rather than expenses, credit cards’ speed of access to funds frequently raises your profits far higher than you would otherwise manage, making those interest rates well worthwhile. If it is short-term debt (under one month), I recommend using credit cards. Just be sure to pay off the card at the end of each month.
Reducing Tax Costs
At the end of the year, you can actually negotiate next year’s marketing budgets. Find out how much you need to spend from your CPA to significantly reduce your tax liability for the current year. See who you can prepay for the year for 20% or more special pricing, and pay by Dec. 31. This helps reduce costs and cuts your marketing costs: If you have to pay 6% on the loan, you still are ahead by 14% and have far fewer taxes to pay – it’s a win-win.
Overall, your credit cards can change a business for better or worse, depending on how it is played. Having access to credit and loans is important to grow at a sustainable speed. Remember, always get loans lined up when you don’t need them, not when you do.
