How Having Bad Credit Helped My Business
I’m all about disclosure, especially if it can be done in a way to be helpful to others, so a conversation on Twitter with a colleague sparked this post. They asked the simple question: “What business credit card do you prefer and why?” For many, not a loaded question, but for me a question with a complex answer. Then when Chris Brogan and I talked briefly about the new recession-inspired “thing” of walking away from debt (I am against, for what it’s worth – I think folks should face the music like grownups)… I knew it was time for this post.
All of my businesses are fully cash based, with no credit involved. This started because I was so careless with my personal credit when I was much younger and in school, and exacerbated later when I made some poor life choices in the romance department and I just didn’t have the credit to get a card or a line of business credit. It has continued as I’ve grown the businesses. As it turns out forcing myself to run and grow a business using only money I actually have forced me to be better at, well, running a business.
What I discovered starting out with no credit to turn to:
1) Having only the cash in the business account to turn to when planning events, attending conferences, paying freelancers, buying supplies and generally doing the day to day has taught me how to make better choices. I more often choose correctly the first time, because I don’t have room for waste, and when I choose poorly, I learn from the mistake immediately. It has the added benefit of being known for paying folks who work with me promptly.
2) I’ve learned to value the currency of referrals and recommendations to help me navigate the choppy waters of not wasting my business’s money.
3) I make less trips and go to fewer events but the ones I attend stick with me, and I maximize the things I learn and the connections I make while there and onward.
4) I only commit to events, projects, charities and organizations I believe in, as each one directly affects my business’s bottom line and cash flow.
5) I’ve become a better business account manager for having to navigate my own credit issues in the past. This makes managing my client accounts and payments easier, including those times when I have to make the call to send someone to collections or generally follow up on non payment. I bring a unique understanding of that problem to the table that helps me resolve it without outside help more often than not.
6) My deep and personal understanding of the concept of consequences has been one of my most valuable business skills when concepting for clients on anything, not just money.
The drawbacks and challenges I’ve encountered without a line of credit to draw on:
1) The first real drawback has only just now arrived, years later, and oddly, is triggered by my success in growing a cash based business. I need to hire a dedicated sales person. Because I am cash based, I am only comfortable offering commission – I want to make sure they get paid, and that they value their work as directly tied to their income. It would be faster to find a hire if I offered a salary, but I’m willing to wait and continue my current business model of only spending what I actually have.
2) I occasionally miss out on some very cool, potentially valuable stuff, like conferences. This is because I only choose to go to things that will get me business, and lateral networking events take a lower priority.
3) Occasionally this makes capital improvements a challenge. My priority is always to pay the folks I work with first, then bills, then, last me. This means second hand office furniture and other things as compromises, and ends up keeping me focused on growing the business and the bottom line.
My take on credit cards:
Even if I’d managed to fix my credit more than I have (I’ve gotten my personal credit from the low 400s to the low 600s over the years with some solid work, and more to come), I still wouldn’t want a business credit card, especially in this economy. I think they use game mechanics like miles and points that are hard to redeem and fully designed to keep you in debt. I also think they separate you mentally from your money – it doesn’t feel real. On a small scale that leads to trouble like I have had. On a large scale I believe that mentality leads to the economic crisis the entire world now faces. We need to stay in touch with reality, grasp the concept of consequences and see many steps ahead to stay out of trouble on both levels.
Is your business cash or credit? What have you learned from either?