Contrary to popular belief, no one is chomping at the bit to throw venture capital money at you.
Chances are, your only source of capital will be your credit cards, home equity loans, followed by a whole lot of finger crossing.
The basis behind the financial management system I developed, "The Financial Life System", is that all income is allocated into three buckets- 'Savings', 'Bills/Debt', and 'Spending'.
What goes in must go out.
You can't spend more than you earn forever without eventually falling into the financial abyss (that is when you run out of credit and can no longer pay for your lifestyle).
Well, when you are building and running a business, sometimes all rules go out the window.
I've been there myself many times.
And though I know better (after all, I wrote the book), I played the same game as every other business person.
I used credit cards and sometimes equity loans to get what I needed to get and to go where I needed to be.
Did I feel guilty even though it went against my grain? Heck no.
I considered it an investment to better my life.
In the long run, credit cards provided me the resource and opportunity to build a better future for my family.
Here are my basic rules for building a business on credit: 1.
Never lose sight of the end.
Know how much available credit you have and develop a plan for how long you have to get your business to cover the payments.
2.
Become conservative when using credit cards on household spending.
I'm not a big advocate of deprivation, but if you are serious about building your business, cut back on other splurging to give yourself a fighting chance.
3.
Follow the Financial Life System three bucket system.
This means you need to know where your income is coming from to fill up the three buckets.
Business or no business, you need to pay your bills, have sufficient money for basic spending, and I believe, put away something for savings.
If you are using your credit to supplement your income, factor that in to your credit burn rate (the amount of time it will take you to burn through your credit).
4.
Don't be frivolous with your credit.
Remember, in the growth stage the credit you use will become debt, so be discretionary on what you spend on the business.
Purchase what you need and try to keep it to areas that will generate revenue or allow you to generate revenue.
5.
When your business becomes self sufficient, make the debt created to build it a business expense and keep it separate from the household debt.
As your business grows and prospers, create a plan to retire it as quickly as possible.
Finally, if you find yourself in trouble with debt don't despair.
There is usually a way out.
It is not difficult to miscalculate and find that your credit didn't hold up long enough for your business to take off.
I've been there too and have gotten out of it.
It requires some skill and determination but there is a way.
And it doesn't mean that your business is doomed for failure.
I used up $50,000 of credit cards building one of my businesses and eventually got it to $6 million per year.
To say the least, I was able to pay off the credit.
So, keep your eye on the ball, build your business, and use credit wisely.
Debt may be a temporary reality, but there is light at the end of the tunnel.