Building credit for your business

Discussion in 'Business Operations' started by Mykster, Apr 17, 2002.

  1. Mykster

    Mykster LawnSite Senior Member
    Messages: 668

    I would like to establish credit for my business but, since I am sole-proprietor Everything falls under my ss#. If I became incorperated, would this help to keep my personal credit and business credit separate?
  2. dougaustreim

    dougaustreim LawnSite Senior Member
    Messages: 488

    Talk to an accountant and a lawyer before incorporating. Incorporating has some tax advantages and theoretically limits liability. The truth is that virtually anyone that might extend you credit is going to ask for personal information and a personal guarantee. Until you have a long and successfual track record they will still look at you, becuase regardless of whether or not you are incorporated, the business is still YOU.

    Start small, open accounts however small wherever you can, pay them promptly and keeping charging and PAYING ever larger amounts. After two or three years of good payments records, your credit situation will improve dramatically. Just remember, though that it only takes a few late payments to undue much of the good that is created.

    Because this industry is seasonal, it is often hard to keep the best payment record. This industry also has a somewhat tarnished reputation. We were turned down for a corporate credit card by one of the largest banks in the country because they don't issue them to businesses in this industry. We had no problem getting corporate cards from several other large banks, but it does say somehting about how this industry is perceived.

    Doug Austreim
    Austreim Landscaping Inc
  3. John Allin

    John Allin LawnSite Bronze Member
    Messages: 1,488

    Good advice.
  4. Sean Adams

    Sean Adams LawnSite Gold Member
    Messages: 3,597

    Can't explain it any better. Great advice.
  5. SprinklerGuy

    SprinklerGuy LawnSite Bronze Member
    Messages: 1,778

    Something we have done, accidentally, might help.

    We opened a credit line, actually at the time it was overdraft protection through a small and very aggresive new bank. This bank only has one branch but it is near the office. AFter 1 year with them we happened to incorporate. After that the overdraft line has turned into a credit line. After 6 months with this credit line at it's current rate I went in and spoke with the loan commitee and explained my pathetic cash flow situation and how I was using a personal credit card to improve it and how it makes my personal credit look bad. Due to the high balance all the time. We usually run most of our expenses for the month on this credit card and then pay it down every 2 weeks or so, so it always looks MAXED out. this is not good for personal credit.

    AFter 2 days they called and approved our credit line at an amount I never thought possible. And the rate is 1/2 that of a credit card!

    Point is, try and establish yourself with a small agressive , small-business friendly bank that you can get to know. I am on first name basis with the president and my personal banker has gone to bat for me on this credit line I'm sure.

    All of this because I was trying to get away from the high fees and low returns at one of the BIG BOY BANKS. Now my checking account is virtually free and Sprinkler Solutions, Inc. has cleared up the credit of its Owner and President. Feels good!
  6. Russo

    Russo LawnSite Senior Member
    Messages: 287

    If you don't have the money to pay for it, you can't afford it.

    If you put a vacation on a credit card, you don't deserve it.

    I can hear all of you mumbling....but,but,but,but......"tax breaks"....but, but, but...."I need mulch TODAY".......

    That is my philosophy in my personal life, and same in my business. I know that MOST of you don't agree. And I DON"T think that my way is the only way.

    Different strokes for different folks.

    It's amazing how much money you have when your not paying payments to someone else, not to mention interest.

    But,but,but......"I got it 90 days same as cash"...

    If I walk in with cash and you walk in with your credit, I'm gonna pay less every time.

    I've seen pics of some guy's equipment on here that have a truck which cost more than their yearly GP. That's what really scares me, not you guys who need 100 yrds of mulch delivered every few days.

    Forgive the long post, Landscraper.
  7. SprinklerGuy

    SprinklerGuy LawnSite Bronze Member
    Messages: 1,778

    Landscraper: you said that you don't think your way is the only way.....I respect that.

    For those of us who want to grow into a large company, one that will provide us with a high level of security and a feeling of owning a company without the company owning us, credit is a must. I'm sorry but I don't know of many companies doing large revenues that don't have a credit line of some sort. If I'm wrong, prove me wrong.

    I guess large revenues are all relative though. My idea of large and yours are probably different. But, that being said, if your cash flow is like most peoples, and you have employees, a credit line is quite helpful.

    I did it without one for almost 7 years, then I took that next step and realized that my cashflow couldn't keep up. Show me how to do it another way and I will listen.
  8. Russo

    Russo LawnSite Senior Member
    Messages: 287

    Sprinkler Guy,

    When I get as big as you on my own, I'm sure that I'll have a better perspective of your position.

    My solution to credit would be to grow slower than most and not buy anything, including plants, mulch, pumps,etc. without paying cash. The "next step" for a guy with my cash approach will take much longer to achieve, but for me it's worth not owing anyone else. Revenue shouldn't be a factor. If revenue is that high, there should be money to pay for what your buying. How is being in bebt providing you with security? I think that's backwards.

    I must add that I lose jobs because I ask for a % of payment upfront when material costs would break me if I got screwed in the final billing. I realize that my approach has cost me work and thus revenue, but it's successful and helps me sleep at night.

    I'll bet that everyone wishes that they didn't owe someone else money. I can't accept that you can only run a "large business" by borrowing money, but by anyone's standards, I am not large yet.

    I completely respect your position and I appreciate you respecting mine. Like I said, I don't claim that my way is better than yours, just better for me. Who knows, maybe I'll be calling you in seven years and asking for help.

    Best of luck, Landscraper.
  9. dougaustreim

    dougaustreim LawnSite Senior Member
    Messages: 488

    Even if one does have a line of credit etc. you should still get a percentage deposit on landscape work. We use the deposits as a scheduling mechanism. Over the years, many clients have and still do string us along, telling us that they are going to have us do their work, and at the last minute they chose someone else.

    Our policy is you are not on the schedule until you have made a one third deposit, and the work gets done in the order that deposits are made.

    Even if you have access to the banks money, why not use the customers instead.

    Doug Austreim
    Austreim Landscaping
  10. Russo

    Russo LawnSite Senior Member
    Messages: 287

    Never even thought to use it as a scheduling tool. I'm gonna steal that idea if you don't mind. I like to get the signature, then do the prep work, then get % 50 payment so folks know I won't skip on them. I like your way better, then I can cover equipment rental, like Bobcat for prep work, with their money too.

    Thanks, bud.

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