Is it time to get another credit card, or a loan?

  • Updated: August 15, 2010 - 4:08 PM

QI started my jewelry business a year ago with a credit card. The business has been self-sufficient and very successful, but I have yet to entirely pay off the credit card. I am getting significantly larger orders and can no longer front the production costs with what I have earned so far. I have heard that most new businesses fail because they grow too fast. Should I open another credit card, get a business loan, look for an investor or not take the larger orders to limit my growth to what I can reasonably handle?

JENNIFER PELLITTERI

WWW.JENNYANDJIMBOB .COM

ABy "self-sufficient and very successful," I assume that means you are profitable. The first thing that I would look at is an accountant-prepared profit & loss statement to confirm your profitability. If you are profitable, then your cash is being consumed in other ways; in your case it is probably inventory. Many jewelry businesses carry far more inventory than is necessary to conduct business. Ironically, many try to reduce inventory by refraining from reordering what they sell, which leaves them with only poor-selling merchandise. That makes no sense.  If excessive inventory is your problem, liquidate what doesn't move and reorder what does.

It is true that some businesses fail because they grow too fast, but that is the exception rather than the rule. Profitable, fast-growing businesses are prized by lenders and usually receive generous credit terms from suppliers.

Since you started your business with credit cards, it sounds as though your suppliers are demanding cash with order. Going further into debt with another credit card or bank loan would not be a good idea.

I recommend that you work with your suppliers to achieve one or both of the following results: First, ask your suppliers for credit terms so you can pay them in 30 or 60 days. Next, see if you can order supplies only as you receive customer orders. This will conserve your cash while retaining the ability to fill large orders.

The beauty of the retail business model is that you get paid immediately, while your suppliers get paid sometime later; you are growing your business with someone else's money.

MIKE RYAN

DIRECTOR, TWIN CITIES

SMALL BUSINESS DEVELOPMENT CENTER

UNIVERSITY OF ST. THOMAS

OPUS COLLEGE OF BUSINESS

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