Hot Stock Profiles

Dear Eva,I’m a stay-at-home mom, but I’m thinking about starting my own jewelry business. I’ve been making jewelry and selling it at craft fairs for the last nine years and have a loyal following in my area. I’m ready to expand online. However, I heard it’s hard to get bank funding these days and am wondering if it would be a good idea to use a credit card for startup funds. What do you think? My husband and I have excellent credit, and I have about $10,000 in cash saved up that I can use as well. Cindy

Dear Cindy,Good for you for starting a successful jewelry business! Staying at it for nine years puts you way ahead of most small businesses 90 percent of which fold within the first five years. Adding an online presence is an exciting idea, too. It could be a great way to expand your business.

However, with that said, allow me for a moment to dust off my Suze Orman impersonation: Whatever else you do, don’t, I implore you, DON’T use credit cards for startup capital!

I know the queen of personal finance would be with me on this one. Although credit cards can play an important role in business funding, they are best used for temporary cash flow issues, not for long-term investing. For example, credit cards can offer valuable access to a line of credit, until you get paid for services already rendered or products sold.

Using credit cards for startup funding, however, is generally a bad idea. Heres why.

First, if you were to use a business credit card, you would not be protected by the Credit CARD Act of 2009, which exempts business cards. This means that your credit card terms, particularly interest rates, could be increased at any time, blindsiding you with higher payments. If you pay the bill for a 0 APR balance transfer late, for example, you could see your interest rates jump to 29.99 percent!

In addition, keeping large balances on your credit cards could potentially trash your credit score, particularly if youre using personal cards and charging close to your credit limit. Even worse, you will be incurring credit card debt that you may not be able to pay back.

Unfortunately, starting a new business is, well, tricky business. You may have a loyal following at the craft fairs where you are currently selling your jewelry. However, there is no guarantee that these people will automatically purchase your products online.

The dynamics of selling online are also very different than in real life.For example, you may have developed personal relationships that you unknowingly capitalize on. People may buy your jewelry, in part, because they like it and, in part, because they have a relationship with you. Also, with craft fairs, there’s an incentive to buy now because the jewelry won’t be easily available after the show. Online, where products are available all the time, there is less incentive to buy, so the dynamics of selling are very different.

This is not to discourage you. If people like your jewelry, as they obviously do, there is no reason why, over time, you can’t develop a successful online business as well. However, the trick is to not throw a lot of money after it, but to instead build your business up slowly.

Now, here is some good news for you. With $10,000 in the bank, you have more than enough money to start an online store! Launching a website these days does not have to be expensive.

You can find plenty of people who will offer to design and build a website for a high price, but don’t go there! There are numerous services available that offer pre-coded, ready-to-use website and store templates for a fraction of what it costs to build a website from scratch.

Both Yahoo and Amazon, for example, offer website stores starting for as little as a $50 set-up fee and $39.95 a month. These services come with well thought out online store templates that give you all the sophistication and utility you need to get up and running in a few days.

With that behind you, you can focus on learning the marketing techniques that work for the Internet, which is a whole big topic by itself. There are plenty of free resources available online for this as well, starting with the marketing education centers at Yahoo and Amazon stores.

So my advice to you is to take it one step at a time. Spending a lot of money on a new business can conceal a painful number of mistakes and cause you to overlook flaws in your business model or sales techniques, making the business unsustainable.

However, if you’re patient and proceed step by step, you can tweak your business model and sales approach as you go. There is a lot to learn about running a business online, and if you go too fast (and pay other people to do what you should learn to do yourself), you could find yourself without the results you had hoped for and, worse, in a lot of debt.

You have already demonstrated that you can take a long-term view and build something slowly and meticulously over time. This is a tremendous strength when it comes to building a business. Continue to build on that, and you will be able to build that online store and stay out of debt at the same time.

Similar Posts:

• Important Differences Between Personal and Business Credit Cards
• FICO 101: Busting The ‘Too Much Credit’ Myth
• Ask Creditnet: Credit Card Options After Bankruptcy
• Nationwide launches reward scheme for credit and debit customers
• How Do Credit Card Companies Assign Interest Rates and Lines of Credit?