Rule number two: Ask yourself how you are going to pay back what you borrow--collateralize your own loan if at all possible. Be willing to sell something such as a nicer car that you own for a more modest one, for instance. Be willing to sell all of your "stuff," to the extent that is necessary to raise funds (preferably up front, prior to starting your business; if you sell when you are desperate and strapped for cash, you will be at a unique psychological disadvantage).

Rule number three: Consider whether or not you absolutely must have whatever you are purchasing on a credit card. If you are charging expenses such as payroll, ask yourself other questions, such as "do I need these employees?" What alternatives have you considered in lieu of paying cash for their services? Maybe you should make them partners to the business and arrange for them to invest with their own "sweat equity" contributions to the enterprise. Have you considered temporaries, interns, freelancers, outsourcing, or virtual assistants? Have you fully automated your business, for example, with Internet enabled ordering systems?

Rule number four: Manage your credit card debt with a vengeance. Pay your credit card bills on time and protect your credit in every way possible. Use an automatic payment service through your checking account provider, an online service, or the credit card companies themselves--don't ever be late. Send two payments just to increase the odds that one will arrive by the due date. Send payments by certified mail, if need be. Do not accumulate balances if they can be avoided. Remember that just about every letter from a bank that starts by stating, "We value your business," probably includes a change in terms; a change of terms is just about always in the bank's best interest and not yours, with few exceptions, such as when it is the result of a legal settlement against the bank.

Rule number five: Watch your own margins. Credit cards started out as a convenience, such that one did not have to carry cash; they were used as a short-term pledge against cash that one had, and would pay back at the end of a billing period (e.g., monthly). They were not designed as a long-term source of capital. Because they are unsecured (although even this is changing), as a vehicle for financing they usually come with higher rates. By using credit cards unwisely, you are doing the exact opposite of what entrepreneurs must do: you are, in effect, buying (capital) at high prices, and selling your good or service under circumstances that reduce your own margins. That's not a formula for being competitive in the long or short run. If you can't raise the price, consider ways to add value so that customers would be willing to pay more. If you can't do that, perhaps you should go back to the drawing board. You might have an unprofitable product or service on your hands.

The above rules take us all the way back to the basics of a viable business idea: do you have a product or service, for which you can demand an adequate price, and sell and deliver in sufficient volume, at a profit--after paying all necessary and ordinary business expenses? Bootstrapping a business startup to get it off the ground is to be admired when it works, but a lack of resources is one of the most cited reasons for business failure--so beware. It should be noted that many entrepreneurs cut themselves short and go without health benefits, insurance, training and self-development, adequate time off, and numerous other perks as well as necessities that foretell their ultimate demise. We all have ideas, and many of these ideas are quite clever. You don't have to be a managerial "somebody" to have a great idea, either. (Corporations can sometimes act downright "dumb" in failing to harness the creative power of rank and file employees). Nevertheless, the pages of business history are strewn with the wreckage of otherwise visionary plans, gone awry.

Perhaps the most critical issue is whether or not you can enlist the support that you need in every context that is necessary to launch and operate your business. It's a pretty good sign when you tell four friends about your idea and they all immediately pull out their check books. Are you truly prepared to start your business? You'd better be pretty sure of your answer before you take the entrepreneurial plunge, especially if you plan to fund your startup with credit cards.
About the Author

Dr. Robert Lahm is the founder of several businesses, an entrepreneurship professor, a public speaker, and a writer. Article reproduction permission is hereby granted providing this article is republished in its entirety, with author's information and any links intact. Copyright 2005 by Dr. Robert J. Lahm, WebPreneurship.com.