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Self-Financing Tips

Sep 14, 2012 | Uncategorized

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In the span of my self-employment career, and with the experience and lessons that have come along with it, I’ve gotten a lot better with my finances. Despite what the credit card companies will tell you, if you think you can ‘charge’ your way to success with your small business, you will be in for a rude awakening. My philosophy these days is to wait until the business is generating the very income that you plan on re-investing back into it. Avoid the temptation to charge on a company credit card… unless your intent is to pay it off that very month.

Some years back, a good friend of mine and I started a small business. We had invented a neat, new golf product and launched a company. For a few amazing years, we experienced the thrill of promoting this new invention on the world stage. We fine-tuned the manufacturing process, we sourced the proper vendors and turned an idea into a turn-key business. We had four partners and each of us contributed our own professional expertise and cash. We had a blast flying out to golf shows in Vegas and Florida and doing the radio talk-show circuit. The problem was that my contribution was on the branding and marketing side, and since that was a big lionshare of the work required, I chose to open up a company credit card for our ‘incidentals’ assuming that we would pay it back through the company’s profits.

There was a problem with that: I was spending money we didn’t have. No matter how great you think your business is going to be or how quickly you picture yourself sailing into the sunset, your best practice is to avoid debt at all costs. Company credit cards come at a higher interest rate, and the one I had sky-rocketed to about 27% at one point. Any profits we were making were going to interest fees and that makes no sense at all. We paid it all off and grew the company, but at a much higher financial penalty that we needed to pay. Lesson learned.

Fortunately for us, we never had to take out a small business loan. In some businesses, where heavy machinery or equipment is necessary, you may have no other choice but to do that. Since I never went through the small business loan process, I really can’t speak on it, other than the fact that the interest rates are usually lower than credit cards. Either way, you are going into debt.

Fast forward to the present. I operate Peralta Design strictly on a cash-basis. My company credit card is my company debit card. We don’t spend what we don’t have. That being said, in order to keep the company running smoothly, we need to make sure we have steady cash-flow and that’s why its imperative that our clients pay on time. As a small business that trying to avoid using credit for its day-to-day expenses, we cannot extend credit to our clients.

Here are some strategies we use to keep cash flow, um, flowing:

  1. Payment Plans: Take large-scale projects and break them up into monthly payments. Smaller payments are easier for clients to make, than larger ones, and it may help close the deal if you show flexibility with your invoices.
  2. Request 60% deposits up front: In certain cases, especially with new clients who have not established a payment history with you
  3. Keep expenses low: for example when we first started, I bought a used MacBook Pro and a used iMac for a freelance station. Now we’re in the market for a brand new machine because our cash flow is better. Most of our office furniture is used, with some new pieces mixed in. The best way to impress people is to not go bankrupt.
  4. Offer non-monetary perks to your employees/staff: Being flexible with their schedules and appointments goes a long way if you cannot afford help that wants to be paid above market value. Creating good morale and a pleasant work environment (I buy lunch on Wednesdays) are also ways to keep the troops happy without breaking the bank.
  5. Convert long-term clients into retainer clients. If you have clients that use your services regularly, consider offering them a reduced rate if they sign on to a retainer agreement. Don’t focus on the hourly rate, but instead look at the benefits of knowing what is coming in monthly, ahead of time.
  6. Avoid non-paying or difficult clients. They will suck you dry and move on to the next one. Extreme exceptions are clients that bring you high profile brand name projects. You may consider the residual value of working on a name-brand project, while at the same time realizing that this client may take a very long time to pay. Proceed with caution.

The finances of design management are not the most glamorous side of the business, but it is vital to staying alive and being successful. If you begin to create debt the minute you start your business, you are creating the “anti-retainer” which is a steady bill that needs to be paid every month, even when YOU aren’t getting paid every month. Recipe for disaster.

At the end of the day, you’ll do what’s best for your business. There are advantages and disadvantages to both. Here’s an article of interest that covers a few:

The Advantages of Paying with a Business Credit Card vs. Cash


Ramon has over 19 years of experience in award-winning, market-proven, print collateral, marketing material, iphone/ipad app and website design specializing in corporate identity and branding. Ramon’s passion for entrepreneurial design was borne out of 10 years as Creative Director for Jay Walker at Walker Digital, the Stamford based idea laboratory and business incubator holding over 300 US Patents. Ramon served as Senior Art Director on the start-up launch team behind Priceline.com, a Walker company and invention. Most recently, Ramon’s logo and identity work was selected to be published in “Typography and Enclosures” the fourth book in the Master Library series by LogoLounge.

Need help with your brand identity or want to overhaul your existing brand? Contact: ramon@peraltadesign.com

Follow Ramon on Twitter @Peralta_Design

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