When you start a new business venture, it is an exciting time but also one filled with stress. One of the main components of starting a new business is financing. While you may have enough cash to open the doors, there are still so many considerations to make about the smaller spending needs of everyday.
Credit is coming back and more businesses are turning to their credit cards to keep them going until a profit can be turned. But is financing with credit cards the right idea for a new business? Here are a few tips on financing a new start up with credit cards:
If you are just establishing a business, there is likely not a profit being generated and there is no solid credit history for the company. As a business owner, the responsibilities lie with you and your own bank account. If you are thinking about using credit cards to start up your company, consider that you may only be able to get the accounts in your name, using your credit information.
If you have excellent credit, consider if you are willing to put your personal credit standing on behalf of the business. A missed payment or two can damage your credit score and make it harder for you to separate business from personal credit issues.
If you have poor credit, you probably won’t qualify for a business line of credit. Make sure you are prepared to grow the business’s financial foundation so that it can develop an independent credit history. In the mean time, you’ll need to secure financing from other sources outside of the credit card industry.
Must Have Cash Plans
A business start up should have a business plan in place that outlines finances, where they are coming from, and where they are going. If your new business has no plan for paying the bills, spending on credit may not be the best idea. With inconsistent income, there is no guarantee you can make the monthly minimum payments. Use credit cards with caution until the business is operating and turning a profit which can pay off the debts. Other options for financing should be considered including personal loans, small business loans, and cash advances from family and friends.
Spending Less Means More
A new business venture can be a flurry of activity and a mess of finances. If you are not careful, you can easily outspend yourself when buying new office equipment and supplies. Being frugal at start up may be necessary to ensure you have what you need to get the job done and still be able to meet the financial obligations of the company. Plan out big purchases and resist impulse buys until you really know what your business needs. By carefully spending in the start up phase, you can construct a more solid financial and credit foundation for your business moving forward.
Separate the Accounting
Being a business owner means taking on the financial obligations of your company. While this is generally necessary for most people during the start of a new business, a plan should be in place to separate business from pleasure in the short-term. Consider amending the structure of your business in a six month to a years’ time. By filing as a Corporation or a LLC, you can operate your business independently and allow the company to build its own credit history through company credit cards. Check with your tax or legal consultant for the proper business structure information.