Imagine this scenario: You’ve just graduated from college. You are given two options: (a) work at a well-known company, or (b) start your own business. Which would you choose?
Many new college graduates would most probably play it safe and choose option (a). Increasing numbers, though, would rather take the risk and go the entrepreneurial route to start up their own businesses.
Donna Fenn, author of Upstarts, a book about the Generation Y start-up phenomenon, says graduates are “starting businesses in droves.” This is due to a number of reasons, among which are the inspiring success stories of Internet entrepreneurs like Steve Jobs and Bill Gates; the founders of Facebook Inc.; and the founders of the photo-sharing app Instagram.
Aside from these, graduates are also aware of regular downsizing and layoffs, meaning lack of job security at large companies.
Starting your small business
Nowadays, with advancements in technology, especially the Internet, it really doesn’t take much to start your own company. Most entrepreneur-wannabes just need a few laptop computers, a reliable Internet connection, and start-up capital.
Speaking of start-up capital, it is getting relatively easier for aspiring small business owners to get investors. CB Insights, a New York firm that monitors start-up funding, reports that investors made 1,749 seed investments, generally worth no more than $1.5 million each, in early-stage companies in 2012.
Aside from investors, graduates can also get the capital they need by applying for a business loan. However, this may prove to be challenging if one has a poor credit score.
Fortunately, there are some things you can do to manage a bad credit rating.
First, determine the “damage” that needs to be “repaired” – check your credit score and think about what you can do to turn it around, if indeed it is in the bad credit range.
More often than not, a person obtains a poor credit score when he or she does not manage his or her credit properly. Sometimes, though, this may not be the only reason. If you are a victim of credit scams, this can lead to bad credit as well. This is why it is important to perform regular credit checks, and to protect one’s identity as much as possible.
Managing your business credit
Once you have your small business set up, make sure that you manage your business credit as you would your personal credit. Here are a few tips:
- Find out if you already have a business credit file.
If you are a small business owner, determine whether or not you have a business credit file with D&B, which is the world’s leading source of commercial information and insight on businesses. If you discover that you already have a business credit file, go over it thoroughly so that you know what information it contains. If needed, make changes so that people looking at your business credit (e.g. financial institutions and suppliers) have the correct information.
- Establish your business credit history.
Small business owners usually use their personal credit and financial resources when they’re just starting out. However, they must establish a separate credit history for their business. This can be done by placing expenses, like a business phone line, under their business name, or opening a commercial bank account and using it to pay business-related bills.
- Always pay your bills on time, and in the full amount as much as possible.
One of the easiest ways to manage business credit scores well and build a good payment history is to pay your bills on time. As much as possible, pay every bill in the exact amount on or before its due date. Also, be sure to use your lines of credit carefully.
- Keep your business credit file updated through regular monitoring.
Monitor your business credit so that you may know if there are any changes in your credit ratings, as these may affect your relationships with customers, financial institutions and suppliers. Always make sure that your credit file is updated and accurate, and shows any changes like location, number of employees and revenue. These all have an effect on your credit rating.
- Monitor your customers’ and merchants’ credit.
Performing credit checks will give you an idea of the credit standing of your customers. This will in turn help you decide how much credit, and on what terms, you should extend to them.
Advantages of business credit management
Small business owners will find that managing their business credit proactively can help guarantee positive cash flow, which is, of course, something every business owner desires.
This is because they can:
- Obtain more financing at better terms.
Small businesses that have good credit will be able to get financing when they need it. Conversely, businesses with poor credit ratings may be charged higher credit card and loan interest rates.
- Get the supplies they need at the best possible terms.
Suppliers usually evaluate the credit of small businesses before deciding on how much credit to extend to them. Having good business credit means you can get the supplies you need at the terms you can afford, which means you free up more money for other business needs.
- Make wiser credit decisions on their customers.
If business owners know the credit of customers, they can give better terms to credit-worthy customers. They can also avoid dealing with customers who don’t pay on time. Both of these can help improve cash flow.
- Protect themselves against business identity theft.
Business owners who actively manage their business credit file help ensure that false or fraudulent information is not in the file. They will always be aware of any inaccuracies and missing data so that they can address these immediately.
Starting a small business, especially if one is still a fresh graduate, may seem challenging. But once you are armed with all the knowledge, tools and resources you need, the journey will not seem so tough anymore. So go ahead and launch that business, and reach for your dreams.
Do you have any useful tips to share with new graduates on how to set up a business? Please feel free to share them in the comments section below. If you find this post useful or know others that could use some tips, go ahead and share it with your friends.
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