[drizzay]

I've just incorperated my lawn care service. I was wondering what would be a good way to build credit under my company's name. I have all the equipment I need to run a great service. my goal is by the end of the year i would like for LAWNS AND ORDER to be in a good position. And ready to expand when the time comes.

[Matt Kulp]

Try and get a credit card to use for materials and such under your corp. name. Any type of major loans and or other type of financing will more then likely have to have your personal guarantee anyway, even if your corp. has good credit. At least from my experience.

[dailylc]

If you want your business to be in a great position at the end of the year, DON'T BORROW MONEY. Cash is the only way to pay for things. Most businesses fail because of to much borrowing. If you have everything you need at this point, start an equipment fund, supply fund etc... If you don't have the money to buy a piece of equipment, rent it until you can save up to purchase used or new.
Set up a sepertate bank account and set aside a % of you profits into that account to plan for new eouip.,supplies,etc...

[HardDaysKnight]

Originally posted by dailylc
If you want your business to be in a great position at the end of the year, DON'T BORROW MONEY. Cash is the only way to pay for things. Most businesses fail because of to much borrowing. If you have everything you need at this point, start an equipment fund, supply fund etc... If you don't have the money to buy a piece of equipment, rent it until you can save up to purchase used or new.
Set up a sepertate bank account and set aside a % of you profits into that account to plan for new eouip.,supplies,etc...

He wants to build credit. He should get a corparate credit card, but be conservative. When you get the deposit
for a job, use your card for mats but pay it off in full at 1st
billing. There are many others here that are brilliant at this
sort of thing. Paying cash to build credit?

[Dale Wiley]

Two different things going on here.

If you want your business to be in a great position at the end of the year, DON'T BORROW MONEY. Cash is the only way to pay for things. Most businesses fail because of to much borrowing. If you have everything you need at this point, start an equipment fund, supply fund etc... If you don't have the money to buy a piece of equipment, rent it until you can save up to purchase used or new.

This great advice. After 27 years in this business and borrowing way too much money, I am basically on a cash basis.

I have an Operating Cash Reserve account that gets 3% of every check that comes in. We pay cash for all supplies and we DEMAND a discount for that. And we usually get it. Because we also buy volume.

My banker is trying to set me up a line of credit. I will set it up, but I will not use it. I intend to pay cash for EVERYTHING from here on out. I may have to lease a couple of big ticket items over the next 5 years, but that is equipment and I can deal with that.

Growth from profits is slow, steady and sure. Any use of leverage carries risks, and after you find your butt missing a good portion , you will learn.

Building credit is good and needs to be done. But the use of credit is far too prevalent in the economy today. Cash is king, and when you owe, you are a servant to the debtor.

I suggest a book called Financial Peace and The Money Make Over by Dave Ramsey. VERY educational.

The business is debt free save for 1 equipment lease and I intend for it to stay that way. Personally it ain't as good, but I should be debt free, save my mortgage in less than a year, and I intend to pay that off in 6 years.

[HardDaysKnight]

Dale wrote:

Building credit is good and needs to be done

We pay cash always now but how does that answer the question? what would be a good way to build credit under his company's name?

[Paul]

Dale I have to disagree, credit is very important unless you never want to get bigger or take on jobs that require bonding, or land that great job that comes along every now and then that requires lots of material and labor that YOU might not have on hand at that time.

What should be said is keeping great credit ratings is most important! This should be with your bank and suppliers!

I had great credit ratings with suppliers and my bank! I made it a point so I could run smoothly during the cash tough June's when my accounts receivable where in the mid 6 figures.

Now a couple of reasons to keep the cash and use credit. I know you can get some great returns on cash reserves by shopping the market! Some in the 7 to 10% range. I also know you can sit down with your banker and get monies at rates in the 4 to 6% range. Suppliers can give you product at 0% interest for 60 to 90 days if you sit down with them and make the right arrangements.

[ALS]

My recomendation would be to get a office depot card another similar card. Pay off the bal BEFORE it is due. I use OD simply because they report frequently to D&B. I read a fairly detailed article on how to do this I will see if I can find it and post it.

Ted

[ALS]

Here is a link to where i read it. It is a Construction (home builders ) forum. If this is not acceptable to the owner/Mods here please feel free to remove it.

Team Contractor


Ted

[Bill Schwab]

I agree with Paul, and also have to say I agree with Dale on many points. I have reached such a point in the companies scenario where credit is crucial to working in some of the venues I want to work in. If I had the cash reserve sitting around to bank roll and operate some of the high 6 and low 7 figure jobs we are bidding on, I most lilely would only take on one landscape job a year, consider the person who hired us extremely lucky he hired us, and in all reality, landsape because I love it, rather than the day to day rush rush rush to get where I want to go, I would be exactly where I want to be.

I believe a good mix of both is the way to go, and I have a buddy out east of us who writed checks for vehicles, because he gets his best deals that way.

Said that, the best way to first get business credit, is by having a good credit report on the personal side. Suppliers are typically the easiest to gain credit with, but those are only a small hunk of the bigger piece.

Suppliers typically do not report to the credit reporting agencies, and when you get into loans say for buildings, and vehicles, those loans are typically score driven as well as personal lines such as with suppliers. If you are after a revolving line of credit, those are considered unsecured. You will need personal credit scores around 720 or greater, and your debt to earn ratios ideally need to dance at 40% debt, 60% earn. There are places that will consider higher ratios, but you are going to pay more juice for them.

Before this goes too much farther, exactly what is it you want to achieve by building business credit, and what vehicles are you considering taking to get there?

[Dale Wiley]

As usual, the voice of experience , Paul brings up good points. I guess I get isolated up here in the Northwest, in Oregon, the Misssissppii (sp??) of the north.

I can live and operate on a cash basis up here. We do about 300K a year, and most is residential design / build and muni sports field work. I do use 30 day term accounts or materials and all that...but we don't do the big ticket jobs that I would need bridge financing on.

We live on $ 3,000 to $ 40,000 jobs and we make the clients pay up, like Bill does. I am never behind on payments from clients.

If I was looking to go much beyond 500K, I would have to change my tune a bit. I plan to be at 500K by 2008, and kind of want to maximize profits after that.

I was raised by Depression Era parents on a farm. Maybe that explains some of it..

[drizzay]

THANKS YOU ALL. ALL THE ADVICE IS VERY INSIGHTFUL AND I'M SURE IT'S GOING TO COME IN VERY USEFUL. HEY THIS FORUM IS GREAT KEEP UP THE GOOD WORK AND BE SAFE OUT THERE.

[johnkeegan]

When discussing the "evils" of credit, it's important not to confuse business credit with personal credit, which is where real credit abuse problem exists in America.
In business, credit can increase your bottom line. Wereas, in your private life, credit becomes a problem because people use it to live beyond their means or to "Keep up with the Jones' ."
In business credit means every thing when starting or expanding a business, especially in an equipment dependant industry. And if you're in an area where the work is seasonal, in Winter and Spring, good credit is king. (So you can take advantage of the 20-30% off prepay deals on plants, stone etc.)
In this business protect your credit rating at all costs. From day one, don't take on debt you're not sure you can repay and NEVER pay late. Have any credit card or installment payments automatically taken from your checking account and have an overdraft on that. In the frantic world of a small businessman it's easy to overlook a bill. But it will cost you dearly later and the bankers don't really care about your sob stories. You're just a credit score number. Get over it.
Eventually, your credit score will increase and you will call the shots with the bankers and creditors. Then, when you need that skidsteer or new dump to take you to the next step you can get it. And you can negotiate the best rates.
Personally, I don't like going to my local bank for loans. Their dumb ass formulas and high overhead mean they don't really understand the world of small business and they're overpriced. When I wanted to buy $85K worth of new Bobcats a few years ago my banks offered 8% and I leaned on my Bobcat salesman to get me 0% for 4 years (AFTER I negotiated the price). The same with my trucks. But without a good credit (853 rating) I'd be dead in the water and at their mercy. And one of the reasons I'm in business is that I don't want to be at anyone's mercy. So as long as my credit is good, I'm in charge.
Also, this may be controversial, but I'm not afraid to use credit cards instead of cash for purchases or as a quick line of credit.

OF COURSE, DON'T DO THIS IF YOU KNOW YOU'RE FINANCIALLY IRRESPONSIBLE OR DON'T HAVE A REAL GRASP ON YOUR BUSINESS' NUMBERS!

First off, when I use my cards I automatically get 1-5% CASH back. That amounted to almost $3K cash in my pocket last year. And between the 30 days to pay from the supplier and the 25 day grace period from the card. You get almost 2 months before you pay.important in the Spring. So you're essentially getting paid to use a line of credit. And when you make the payment on time, you're increasing your credit score.
Also, if I see a need for a piece of equipment that cost $10-$30K and I can't smooze a low interest rate from the dealer, I'll use one of the convenience checks that has a FIXED rate of 3% for as long as I need to pay it off. And I can write it on the spot and not waste hours of my time pleading with a banker so I can have the privelege of his SECURED 8.5% loan. Essentially, I have an abundant unsecured line of credit available for 3% through the credit card company whenever I need it....and if I want, I can even transfer those balances over to a 0% card for a year or longer.
I know this makes alot of people nervous. But IF you're financially disciplined, meaning, A) You only make purchases that will truly help your bottom line and not because you like new shiny things and; B) You've calculated the payments into your yearly budget and are sure of on time payments... then you can get the equipment, land, whatever you need when you need it and save thousands each year in interest payments. In fact, last year I got far more back in "cash rewards" than I paid in interest ."
Again, not for everyone. But it works well for me.

[Gardenhaus]

The best way to build credit is to NOT build credit......

This has been discussed in length on other posts. however, let's do the cliff's notes.....

America is now built on credit....43% yes 43% of homes financed this year were financed with 0 yes 0% down.......great position to be in

Warren Buffet. arguably one of the best investors in the world....purchased a little company known as Pampered Chef.....which had been started by a woman in her kitchen and built to a $700 million company with ZERO debt anywhere along the way, which is what caught Warren'sharp eye....

She built the company originally by buying kitchen items at retail and then reselling them (similar to us renting equipment before we can buy it) she progressed to buying wholesale and as tehy say the rest is history.....

Cash is KING period........been down the other road many years ago and there is nothing worse than a reformed spender...OK a reformed smoker may be worse Although I have never smoked, but my relatives have.........

Some have said they manage their credit lines......that may be a function of poor cash flow (need more downstroke from the client) living beyond ones means (hey we can all manage that one a little better)

We have all commented on this before, but I believe you have to figure out what you need to make to live for the year and then meet that goal.....if you can make that 7 months and take 5 off great or 11 months and take 1 month off........we all got into our business's to take control and often they control us......

How many small business owners do you know that say I have not had a vakay in years.......

But what about the argument that you need a credit score to buy a home.......again BS......you simply need to find a mortgage company that does manual....yes manaul underwriting....they are out there......you need to prove you pay your bills on time, have had a job for 2 years, paid your landlord on time and after your down stroke, your payment should not exceed 25% of your net income.

Just like you should never buy a car that costs more than half you annual income....and that should be paid for in cash......lot's of millionaires have no credit scores....why because they pay cash....how did they get to be millionaires.....living within their means.

We took the position of going solely after jobs that require more technical & horticulutral knowledge and more demanding clients....I prefer to be a big fish in a small pond......I f I went to Philly their would be 20 companies as good and better than us......but where we live.....we are the best at what we do.....

No we are not going to be a 2 million dollar company...but hey if you can't live on high 5 or low 6 figures a year...even on the east coast you are way over extended........

Bill does huge jobs on teh west coast and is obviously successful......he has to have huge trust in the companies he subs for or clients he works for to carry that kind of credit line and it works for him.

Maybe it is because I am older that I take the point of view that hey.....we are great at what we do, when you want to meet at 5 AM I am there, something not right we are there yesterday, and on and on

I always find it interesting at green industry meetings most peoples first question is So how many crews do you have????? which is totally irrelevant. The question should be....So what is your average gross or net margin...which is also acutally useless because it depends how you structure your chart of accounts and how you manipulate numbers.........

So in the end it should come down to.....love what you are doing......if what you are doing today was tomorrow's headline...would you be proud of it and can you sleep at night worry free.......

I don't ever plan on retiring...big waste of time and I enjoy what I do.....I would rather take 4-6 weeks off each year for now while I have fully functional body parts and 2-3 months off a year 10 years from now...when I hope I still have completely functioning body parts.


Suggested reading....Rich Dad Poor Dad.....Millionaire Next Door

[Matt Kulp]

I agree that cash is always good, but to say it is best I disagree. I think it does have to with the individual and the circumstances. All of us, mabey not all of us, but many of us would not be where we are without using other peoples money to buy assets. The purchase of a new mower or truck in the infancy of most companies was done by financing. The key is the type of financing, and the time it takes to pay it back. I hate debt as much as the next guy, but I know the difference of leverage and being over leveraged. With leverage you have many more options open to you that you would not if you wait until you can pay for something with cash. There is a big difference in personal debt and business debt. I agree that many millionairs do not have mortgages or personal debt, but I guarantee that they used some type of financing in there businesses (e.g. office space, product mfg.) Look at it like this, unless you are paying for all of your materials upon delivery, you are using some form of financing. Your financing may be 30, 60 days, or whatever, but you are still using it.
So if a guy wants to get a cc card to extend the terms or a loan to buy the vehicle, whats the difference. They may pay interest, but if they are making 15-20 percent a year on that 6% loan, doesn't that sound like a good investment? I just think you have to be smart about it and look at the big picture before you jump into anything. What may be good for one guy, may not be for the other.

Somebody made mention of Rich Dad Poor Dad, Robert K. also preaches the use of using other peoples money to buy assets. His may be real estate and businesses, ours are trucks and trailers. JMO