The most frequent questions I receive from readers involve starting a small business, which they finance using personal credit cards.  They end up without a business credit rating.  And while they started with excellent personal credit scores when they formed the company, their personal credit often drops down into the subprime range as a result of high balances charged on personal accounts.  This scenario can make you feel as if you're running in circles -- even when a business is succeeding.

There are easier, smarter, and more profitable ways to fund your own enterprise.  You can build or retain excellent personal credit while you develop excellent business credit.  And you'll be poised to grow your company with business loans if you desire to do that.

Plan for the money you need.  When you decide to start a company, write a business plan.  Most small businesses do not need to be concerned with complex charts and projections included in some business planning books, but you do need a good idea about what is required to make your company a success.  I've seen ideas that grew into Silicon Valley market leaders that were planned on napkins. 

If you capture the correct information, many pages are not required.  It can be a one or two page simple document that addresses these basic questions:

1. What will your business do?

2. What are you going to sell?  Products?  Services?

3. Who will your customers be?  ("Everyone" is not targeted enough.) 

4. Who are your primary competitors?  (Be honest.)  If you have a first-to-market idea with no direct competition, how are people satisfying the need now?  That's your competition. 

5. What makes you special?  Describe what will make your goods or services more appealing to customers than your competitors'.  (This info is likely to evolve into your basic sales pitch.)

6. What's your overhead? Make a list of everything you need to spend money on between now and when your business starts producing income.  The most effective way to do this is to imagine yourself in business.  Write down all the details because there are far too many for anyone to remember. 

For example, you'll get leads through local merchants.  This means you'll visit businesses to sell them on extending their reach by referring customers to you.  Maybe you'll need a small format brochure with an acrylic holder that will sit in the shops of merchants, business cards and samples to give to merchants, and a dedicated phone line.  It also means you'll need a website that tells potential customers more about your business than your brochure does.

What happens when a prospective customer emails or calls you?  If you're selling a product, can sales occur primarily on your website.  If so, this will keep your costs down because you will not need someone available to take orders by phone.  It also means you need to provide everything a customer requires to purchase online.

You can see that by going through every step of your business operation in a day-to-day mindset, you'll be able to think of most expenses you'll need to plan for.  You might not know the exact name for something, but you'll know the capabilities you need.  Write every detail on your list.  If you can work on it over a week or two, you'll continually think of things to add. 

When you finish, it's time to prioritize and attach dollars.  What is necessary to start your company and what can be delayed?  When you research costs, give yourself a cushion.  It's likely that you'll encounter unexpected expenses and the lowest price will not always be what you need. 

Some businesses require far less overhead than others.  A person starting in consulting may only need business cards and a new phone line.  However, most new companies invest in much more. 

7. What's your estimated monthly income? After you attach dollar amounts to your list, figure out how much money you need to fund your enterprise until business income will cover your basic expenses.  And estimate (brutal honesty is your friend) how much income you can generate, how fast, to grow your business month-by-month.

Congratulations!  You have a business plan.  This is a living document.  It's supposed to change and grow with your company. 

This post is the first in a series that will take you step-by-step through ways to use and preserve your personal credit while you establish your business credit. Next week I'll address funding your start-up costs.