I know on an intellectual level that access to credit is important when you are running a business.  I’ve heard that but I never really understood why.  If you are a regular reader of this blog then you know that I dislike credit in general.  Part of me has always felt like if you are running your business properly then you shouldn’t need credit.  However, I’m starting to understand why it really is important for running a business.

First things first, I mailed our first invoice the other day.  It was for almost $3,000!  I like that a lot.  It’s gotten a bit busier and I have two people working now.  Which is great… cause we make money for each hour that they work.  But the thing is that we have to pay the techs looong before we get paid any money.  I’ve paid about $500 in payroll so far.  But tomorrow I have to do it again, and this time it’s going to be for about $1,500.   I will need to take that whole amount out of our savings.  I’m hoping that our customer pays the invoice before I have to pay payroll yet another time.  But there is no guarantee of that.  In our contract they have 45 days.  I’ve heard through the grapevine that they pay quicker than that… but we will have to wait and see.

At this point we have contributed $3,000 to the business.  With this next payroll it will be $4,500.  I could possibly have to pay a third payroll out of pocket before receiving any payment on the invoice.  We could be talking over $6,000 out of pocket before we see a dime in revenues.  Then if each month is busier than the last it could be a long time before we have positive cash flow.  Always playing catch up with the invoices.  Always paying more in payroll than the previous month’s sales.

So far we have been able to contribute to the company with money from savings.  But eventually that money will run out.  Then what?  We will have to get a loan.  On one hand I hope it doesn’t come to that, but if it means we are really busy then maybe it would be a good sign.  I will only need to resort to a loan to make payroll if we just keep getting busier and busier.

So I finally get it… Credit is a necessity when you are running a business.

pic by: miguelb

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