Operate a construction business and you will inevitably end up wearing several hats: handyman, salesperson, estimator, bookkeeper and project manager. With so many responsibilities, it’s easy to overlook things, but the one thing you don’t want to ignore is building and maintaining good credit. You might think this is unimportant, especially when things are going so well in your business. But as so many experts point out, the best time to prepare for a downturn is when business is booming. With a few simple steps, you can establish and maintain a positive profile. Here are 3 ways to stay smart about credit:
- Stay on top of your profile. If you don’t have a profile, contact Dun & Bradstreet, which maintains credit files on businesses. It assigns credit scores based on a wide range of factors, including revenue, location, number of employees, length of credit history, and type of industry. Lenders will use this information to determine your company’s creditworthiness.
- Pay your bills and pay them on time. Paying your obligations demonstrates that you have positive cash flow and the resources to cover your liabilities. Paying them on time means you’re a diligent businessman and a good business risk. Paying late places your credit at risk and damages your reputation before potential lenders.
- Limit your borrowing. How much and how often you borrow and how quickly you retire any debt impacts your credit. Short term and long term debt on your balance sheet can have a negative impact on your company’s value and make you a lending risk.
Why Do You Need Good Credit?
Cash flow is one of the major concerns of any business, especially in the construction industry. Credit can provide you an injection of additional dollars, allowing you to expand and even become more profitable.
- Access to money when you need it. When it comes to owning a business, too much demand is typically a good problem to have. But if you lack the financial resources to expand when needed and to take on new work, you can end up like countless other businesses that fail because they can’t afford to finance their own growth.
- Better finance terms. When you need to borrow money, a positive credit history will net you more favorable terms. Whether you are applying for a credit card, a line of credit, or a loan, a better credit profile translates into lower interest rates and easier access to the funds you need.
- Eliminate need to prepay. Good credit should reduce if not dispense with the need for any prepayment requirements in your business. Being a good credit risk gives your suppliers the sort of comfort they need to allow you to purchase products and services for your business under normal payment terms.
Good credit is essential to all business concerns – make it happen.