Small Business Blog

From time to time while driving around town I’ll tune into a variety of talk show programs. I’ve recently noticed a similarity among some of them that I don’t think is intended, but is very real.

Dr. Laura airs a talk show where people call in and repeatedly annoy Dr. Laura by asking basically the same question the last 42 callers have asked. The question is generally something along the line of, “I’ve been listening for 17 years and my boyfriend, who I’ve been dating for 14 years won’t marry me. He’s cheated on my twice, but I know if I marry him he’ll stop cheating. What should I do Dr. Laura?”

Upon several occasions I’ve almost dialed the suicide hotline thinking Dr. Laura was going to pull the trigger on the air if she had to listen to one more person ask such a stupid question.

Another program I tune into is Dave Ramsey. The major differences between Dave and Laura are a little more patience on Dave’s part and a little less of a Dr. Phil accent on Dr. Laura’s part. Beyond that, the core of the show is the same.

“Hi Dave, I’m a longtime listener. I should have been able to pick up on this after the first 15 minutes of listening to your show, but I needed to ask I’m paying 18 percent interest on my credit card, but I really want a new plasma TV. Should I borrow the money from next week’s paycheck to buy the TV so I can watch the Super Bowl?”

The similarity is that the average caller on these shows needs to somehow have Darwin’s theory of natural selection forced on their life.

There is a poll on the Wall Street Journal’s Web site that asks “Have you ever used your credit cards to finance your business?” I want to share this with you because it is a spin-off of a survey the Small Business Association conducted in April, 2009 that showed 59 percent of the businesses responded “Yes” they had used credit-card financing for their business during the last 12 months as compared to 49 percent saying “Yes” in December, 2008.

In times when business credit is being scrutinized and business loans are about as easy to come by as a decent idea for a Valentine’s Day gift for my wife this year, I’m not surprised in the least to see statistically what I’ve suspected for a while now.

I do want to make one thing very clear about using a credit card to finance your business, and that is, it’s a great idea!

Yep, you heard me right. Credit cards for businesses should have been used at this higher rate for years before any credit crunch ever came if you do it right. And by “do it right” I mean “Only if you are a disciplined, self controlled individual with the diligence to pay close attention to detail.”

Here is the advice I give for standard use of credit cards to finance your small business.

First, everyone close your eyes and begin chanting your mantra over and over together. “Cash Is King… Cash Is King… Cash Is King”. Now that we’re all in the same frame of mind, here are the steps for financing your business with credit cards.

Your business needs to order inventory, supplies or some other item from a vendor. The vendor gives you terms of 2, 10, net 30. Most business right now are lucky to hit 30 days, much less hope for that 2 percent discount by paying it off in 10 days. But for the sake of discussion purposes, I’ll discuss both possibilities. Here are tricks to help you out.

Trick one. If you’ve been paying your account on time within 30 days, but can’t make 10, on day 9, swipe your card and you’ll get the 2 percent discount and another 20 to 30 days to keep that cash in your drawer. I know 2 percent isn’t much, but in today’s market Benjamin Franklin’s words, “A penny saved is a penny earned” still hold true.

Trick two. If you’ve been struggling to pay your accounts in 30 days and if you had another few weeks, your cash flow would be so much happier, then when day 30 rolls around swipe your card. Now, that inventory you’ve been trying to push has a while longer to sell before the check gets sent. Your net 30 terms just became net 50 to 60.

Please, be patient. Before you report me to Dave Ramsey and his anti-credit card Gestapo, let me clarify with the statement that no statement of yours should ever have a balance due on it for more than one month’s worth of expenses. Similarly, you should continually monitor all of the expenses on your card and budget within the month to pay the bill off entirely when the statement is due. I’ve seen my share of businesses still paying 18% for inventory that was used 6 months ago, and I’ll relay their message by saying “This sucks!”

Understand that a credit card is a tool. While there is a definite need to control impulse buying on credit cards and somehow creating a utopian society that appreciates delayed gratification much more than the instant, give me now buying habits in place, I feel very comfortable explaining this here in this forum because as business owners, you’re supposed to be the brightest, the best and the quickest to learn. So use your credit card like the sharp knife it is.

Respect it, and you’ll be fine. Fail to respect it and you’ll cut your own throat right after uttering the words, “Thanks for taking my call Dave.”

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