Forums: Discussions for entrepreneurs and small business.

I am 11% owner in a small boutique clothing store.  My business partner does not have the score to get his own own credit.  We used my credit to get a card about 2 years ago.

Since that time my business partner has been cash flowing the business off it.  I'm not going into micro detail, but most of everything we purchase for the store goes on the card and it paid off as sales come in.

Questions:

1. What are opinions on using this as a method of providing credit to our business?
2. Anyone have experience on using my credit to cash flow the business entails me to more profits or percentage of ownership or is it just a necessary fact of being a SB owner.
3. What agreement should we have in place with respect to the use of my card?
   
4. What are other things I should be thinking about?

Thank you in advance.

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All great questions.

Credit Card financing is OK for a short period - it is only short-term financing and is being miss used if it is being used for long-term funding - like you are doing now. Whle you seem to have made it this far - using credit cards this long will eventually sneek up and bit you.

Credit cards can be used to get your business started - most businesses do it this way.  But, once the business begins to grow and build financial assets for itself - it should then transistion to those assets - for example, if you have accounts receivables - you can factor these receivables for operating capital to push you through your operating cycle (this is what it seems you are doing with your credit cards).

If no accounts receivables - there is simular purchase order finacning that can get you the cash you need to complete jobs or orders that you have in had - again and operating cycle financing option.

There are also business cash advances if you accept credit cards as payments from customers - agains short-term working capital more designed for you business funding than credit cards.

The idea is to use business assets to grow the business - termed leverage.  Thus, you can eventually seperate out your personal financing side and rely solely on the business to fund itself.

Regarding you receiving additional % of the business - it really depends on what else you do.  If all you do is provide financing - then maybe not.  If you already contribute for the 11% and are adding to credit use to keep the business going - then it is time to renegotiate your ownership share.

Or, you could always take your cards back - then have the business come to you for their use - this way - each time the business comes to you - you can negotiate added benefit for your self - example - the business uses your credit to fund the operating cycle - for this you get 1% additioanl share - when the business pays you off - you give back say 75% of that 1% - thus you get benefit for taking the risk.

Regarding an agreement - if you don't already have one in place - you are taking more risk then you should.  Take soem time and visit an attorney who has knowledge in thsi field and work something up - it will be less costly and more benficial in the long run.

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