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Minimizing Debt by Using Credit Wisely August 1999 — Managing debt and using credit wisely is an important management tool in running and operating a start-up business. This month's survey found that small business owners are using a variety of resources to manage their liability. In fact, almost 75% said that they rely on three main sources to determine the amount of debt their business can assume: business plan projections (28.6%), professional advice from accountants or loan officers (14.3%), and current financing needs (21.4%). When asked how they currently finance their small business, nearly two-thirds of those surveyed use personal savings. Nearly two-thirds also said they use credit cards, 50 percent using personal credit cards and 14 percent using business credit cards. Loans from lending institutions account for more than a quarter (28.6%) towards financing their businesses, while others equally receive loans from family and friends or venture capital funds (21.4%). In addition to providing financing for many business owners, a majority of the respondents (63%) said they use or plan to use a business credit card to manage their expenses. On the other hand, more than half of the respondents (57%) said they are financing against "unencumbered" equity that is free of related debt. In terms of cash flow and collections, most of the small business owners had good news to report. Half the respondents said their major expenditures generate cash and nearly two-thirds (64%) have no difficulty collecting accounts receivable. In terms of payment options and accounts receivables, most small business owners said they accept checks (71%), cash (64%), credit cards (50%), and short-term credit (50%). Only 14 percent of those responding said they accept long-term credit. Paying attention to debt financing is a rich source for fueling a business. It's essential to look at debt as two parts of an equation for achieving profitability: how much debt is appropriate and how it can be controlled. An indispensable tool to determine the ability to service debt is a business plan, which serves as a blueprint to a balanced ledger. Additionally, once you assume a loan, make efforts to control debt by using credit wisely. Purchase assets that will produce a profit and generate cash flow. Click here to view the results of previous surveys.

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