Focus on Credit to Build a More Resilient Furniture Business

Furniture World Magazine

By Richard Flynn, American Express OPEN The housing market has been one of the hardest hit during the current recession, and this has had a knock-on effect on all related industries, including home furnishings. In the current climate, it’s easy to forget that downturns eventually give way to better economic times. But while patience and perseverance are required to weather this economic low, retailers shouldn’t simply wait passively. Savvy business owners tackle downturns with proactive measures to build a more resilient business. In addition to the many customer-related moves you may make, such as more strategic marketing or special offers, it’s important to focus on the one tool that supports your entire business: credit. In good and bad times, credit can help keep a business steady. It provides financing for new growth initiatives or temporary relief during a cash flow crunch. By keeping the following tips in mind, you can take an active approach to managing credit to give yourself more financing options that will help keep your business strong. Put your best foot forward Lenders look at a number of sources to judge your business’s creditworthiness, and they will look even more closely in the current economic climate. If you’ve established a strong history with a specific lender, that’s a great start, but lenders also generally look beyond their own records to assess your credit history, turning to personal credit and commercial credit bureau reports. It’s important to make sure lenders see the best and most accurate record of your credit history. Think of credit reports as your business’s resume when it comes to lenders. Just like a great resume, an impressive and complete credit report can open doors, but a report that provides incomplete or inaccurate information about your business can cause lenders to say “no thanks.” To put your best foot forward, begin by making sure your business is registered with the major reporting agencies, such as Dun & Bradstreet, Experian and Equifax. The more sources of information there are about your company, the easier it is for lenders to confirm that you are an established business. You’ll also need to review your company’s profile and credit report often so you can address and correct any inaccuracies. For example, is the Service Industry Code (SIC) accurate? If not, your company could be seen as part of another industry entirely. Also review your entire payment history carefully, and check any Uniform Commercial Code (UCC) filings to confirm information about any applicable leases or liens. Find the right balance Once you’re prepared to make the best impression possible, apply immediately for any credit you anticipate needing. If you wait until you actually need it, your credit record may already be less attractive to lenders. Furthermore, securing credit with terms you’re comfortable with takes time—a luxury you may not have later. A far greater challenge than figuring out when to seek credit is knowing how much credit to apply for. Applying for too little can leave you strapped for cash, but applying for too much credit—or too often—can adversely affect your credit score. It’s important, for example, to have enough short-term credit to cover short-term expenses, such as inventory and payroll. But if you have too much, you may be turned down for vital long-term credit when you need new delivery trucks or a larger showroom. You can determine the right balance for your business with a C.P.A. or other trusted financial advisor. But in preparation, make sure you have a good understanding of what your current expenses are and what your future expenses may be. While reviewing what you currently spend, take time to question whether your expenses are really as low as they could be. What you’ve come to consider essential may not be. Monthly expenses are a particularly great place to cut back. Speak to long-term vendors and find out whether you can renegotiate a deal. If you’ve been a solid, long-term customer, a slow economy may offer room to negotiate. Also evaluate your business’s efficiency. Many businesses become set in their ways, but lean times are a great opportunity to streamline. As you’ve grown, perhaps you’ve outgrown how you purchase office supplies or your Internet and phone service providers. There may, for example, be a way to gain a discount by making fewer but larger orders. Protect what you’ve earned If your company has good credit as well as an appropriate amount of credit on hand, you’re in great shape, but you’ll have to work to maintain your good standing. One of the easiest ways to maintain good credit is simply to pay on time. As easy as that sounds, however, routine tasks like paying the bills can sometimes be overlooked in small businesses since owners and employees generally wear several hats. To avoid this problem, set up a fixed procedure for reviewing and paying the bills each month and appoint one or more people to carry it out. You should also take advantage of any tools that lenders offer to make timely payment easier. Some offer the option of setting up automatic payments each month, as well as account alerts by email or text message to keep you informed. Many lenders also offer the convenience of paying online or by phone, which allows you to hold onto cash as long as possible while still paying on time. To make sure you’ll have the cash to pay your bills, take a close look at cash flow management. Proper cash flow will give you the means to pay the bills and help you avoid overusing or misusing credit. To keep cash flowing, look for ways to make your invoicing more efficient. Understanding every customer’s invoice protocol and who manages payments will reduce delays and help keep you informed about when you can expect payment. Another possibility to streamline invoicing and payment is to bill electronically and receive payments by electronic funds transfer. In addition, you may want to consider accepting credit cards for payment if you don’t already do so, because it can limit your exposure to late payments and provide cash quickly. Regardless of how carefully you manage cash, you will at some point need credit. The key is to make sure you use it wisely. Use long-term credit for long-term investments, and short-term credit such as credit cards and credit lines for short-term expenses. And above all, don’t use it when you don’t really need it. If debt evens out cash flow or contributes directly to revenue, it’s probably worth considering. When using credit and charge cards, consider making purchases with business cards that provide points and other payback options. Also, use charge cards when you can pay off purchases in full by the end of the month. Every penny counts in challenging times, so be sure to pay off bills when funds allow. These payments will reflect positively on your credit profile. Perhaps the one truly good thing about tough times is that they don’t last. So make the best of lean times and build a resilient business that will soar when the economy eventually rebounds. For more tips on managing credit and building a resilient business, log onto OPENForum at openforum.com. OPENForum was created by American Express OPEN for retailers and other small businesses seeking community building opportunities, specialized small business content, and advice from business leaders. Richard Flynn is senior vice president and general manager for American Express OPEN, the nation's leading issuer of card products for small business owners.