If you’ve been in this business for any amount of time you’re well aware that sales cycles and product delivery cycles can be extraordinarily long. At International Solutions Group, it’s not uncommon for us to wait three to six months to learn the final outcome of a particular opportunity for which we submitted a proposal.
Similarly, even though we often hear from our clients about the urgency of delivery the projects we implement, it’s not unusual for the acceptance of our final deliverables to be delayed. Then there is further delay in receiving payment. Even in perfect world scenarios, your client still usually has a minimum of a 30-day window, and sometimes more, to fulfill your invoices after you have submitted them.
The point I’m trying to make is simple: as an independent professional or small company, you need to have the ability to float costs while you find your next piece of work and while you’re implementing a project for a client. Said another way, you need access to some form of credit.
Access to credit provides you with the ability to use debt as an instrument of leverage to grow and sustain your business. Now, given the times that we live in, for many people debt can be a scary, four-letter word . But when managed properly and used judiciously, debt can be a powerful tool in your management skills set.
There are as many sources of credit as there are different flavors of banks. But let’s focus on five major types of credit that you can us in your individual practice or small business:
1) Line of credit. In my opinion, this is the Holy Grail of credit options. A line of credit is like getting a very inexpensive credit card from your bank, usually associated with a very significant available balance. Because of the nature of most of the work in international development and humanitarian aid, securing a line of credit can be somewhat difficult. It will also require that you secure the line of credit with your own personal assets, or if you work in a partnership, your assets and those of your partners.
2) Corporate credit card. It shouldn’t be news to you that you should keep your business and personal finances separate. Because you have a business banking account, you should also have a credit card associated with your business. This credit card is a good source of debt leverage, but, as we all know, charges high interest and usually offers a fairly limited available balance. Regardless of whether or not you have a line of credit, you’re going to need a credit card to book air tickets, stay in hotels, buy meals and conduct any number of other transactions integral to the work of an international development consultant.
3) Personal credit card. Depending on how quickly you are growing your business, your access to business credit may not be substantial enough to cover all your operational expenses. In this cases, you may consider using your personal credit cards for financing activities. However, credit card debt can quickly get out of hand if not managed correctly. Anytime you use a personal credit card, make sure you commit to filing an associated expense report that is paid out at least on a monthly basis so that you can maintain your balances and pay down your personal debt.
4) Friends and family. It’s not atypical for individuals and small companies looking to grow to seek funding from those who are close to them. While receiving money in the form of debt from these individuals and groups can be some of the lowest hanging fruit, it can also be the most dangerous if not handled properly. Make sure that if you consider taking loans from family members or friends, you have written agreements that you honor without question.
5) Yourself. The final source of credit to consider is your own personal finances. Assuming you are keeping your business and personal financial matters separate, you may be willing to make a personal financial bet on your company. You should ask your accountant about the nuances of lending money to yourself, but this can be a powerful source of credit if push comes to shove.
At the end of the day, credit is absolutely essential if you expect to grow your individual practice or small company. The more types of credit you have access to, the more agility you will have when it comes to implementing larger contracts and pushing the inside of the envelope on the types and sizes of work that you can perform. Just remember that credit, like everything else in your business, must be managed carefully and with a heavy dose of realism.