Walk This Way

Hold It!

Don't empty your wallet without assessing your finances.

Most entrepreneurs foolishly put their own money into their businesses without taking stock of their personal financial situation, says Eric Tyson, author of Small Business For Dummies (IDG Books Worldwide).

"Before you pour all available cash into your business, do some number-crunching," he advises. "Determine what you need [to start the business], and then see if your personal resources, typically savings and equity, can cover it after your living expenses are met. The idea is to determine how much of your personal assets you can comfortably put into your business while still keeping some in reserve."

Tyson believes selling your life insurance policy or dipping into pension and retirement accounts to foot your business bills is a mistake. "Dipping into pension money could come back to haunt you if things don't work out as planned and you fold your business," he says.

Finally, if at all possible, don't finance your business with personal credit cards. Says Tyson. "Not only do you face high interest rates, but you also face [the danger of] a poor credit rating and even personal bankruptcy if you can't pay off the debt."

Tyson advises against believing everything you hear about using credit cards for your business expenses. "Entrepreneurs who have successfully launched companies using credit cards have been romanticized in the business press, but unfortunately, you seldom hear about the failures and the accompanying repercussions of not being able to pay off the debt," he says.

This is reason enough to spend within your means during your first and most critical year in business.

Contact Sources

Bottle Rocket Inc., (212) 352-2040, http://www.bottlerocket.com

Copier Brothers, 1407 E. Thomas Rd., Phoenix, AZ 85014, fax: (602) 241-0912

Music Recyclery, (847) 855-7844, http://www.useddiscs.com/cdstore

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This article was originally published in the October 1998 print edition of Entrepreneur with the headline: Walk This Way.

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