How to Start Your eBay Business Without Credit Card Debt
August 24, 2007
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Is it wise to go into debt when you’re starting a business? Do you have to borrow a chunk of money or is there any other way get started? I had a reader email me in response to my post on using credit cards to buy eBay inventory.
“Many small businesses use credit cards to fund their initial expenses. A lot of times when you’re just getting started you need some seed money and credit cards are a simple way of getting it. Sure there’s the risk you’ll carry a balance for a while until you become profitable but isn’t assuming risk just part of doing business?”
The saying goes “it takes money to make money”. The good news is you don’t necessarily need a lot of money to get started. The very first thing that Guy Kawasaki tells us in the “Art of Bootstrapping” is to focus on cash flow.
“Focus on cash flow, not profitability. The theory is that profits are the key to survival. If you could pay the bills with theories, this would be fine. The reality is that you pay bills with cash, so focus on cash flow. If you know you are going to bootstrap, you should start a business with a small up-front capital requirement, short sales cycles, short payment terms, and recurring revenue. It means passing up the big sale that take twelve months to close, deliver, and collect. Cash is not only king, it’s queen and prince too for a bootstrapper.”
Bootrapping on eBay
eBay fits Guy’s requirements pretty well. You can start off only selling one or a few things so the up-front capital requirement is small. Auctions can last 3-10 days so the sales cycle is short, unless you sell in an eBay store which may have longer inventory turns. You can set your own payment terms, if you only accept PayPal then most people pay within a day or two of winning the item. The recurring revenue of course depends on you finding new products to sell but the good news is products are everywhere.
Why Go Into Credit Card Debt?
The reader mentions that many small businesses use credit cards to get started. While this may be true, I would ask, why take on high interest debt when you don’t have to? You can actually be profitable and have positive cash flow after your first sale on eBay, why go into debt that will just eat into your earnings?
Of course, the way to keep initial capital requirements small for an eBay business is to start only selling a few things. As you make money on the initial sales, you can re-invest the profits into additional inventory and grow the business without debt. If someone is looking to start out with tons of inventory and sell hundreds of dollars of goods a week right off the bat, they may have to borrow money up front.
If you don’t want to go into credit card debt to start making money online you can always pursue other, less expensive funding sources such as taking out a second mortgage, dipping into personal savings, borrowing from friends or family, taking out a bank loan, or borrowing on Prosper.
eBay & Prosper
eBay is actually hosting a Prosper forum today for people interested in borrowing startup money on Prosper.com. Run by Prosper Marketing Director, Shira Levine, it will go over some of the basics of small business finances. Here is summary of the forum:
“We’ll cover the five basic questions every business should ask themselves before you finance, how to know where you stand financially, and the importance of cash reserves in your company. Then we’ll cover financing basics: debt vs. equity, credit scores and reports, and common pitfalls to avoid. The workshop will end with how to create an excellent loan listing on Prosper that will get your business funded.”
Credit Card Funding
Of course everyone’s situation is different and using a credit card as a funding source might work out for some people. However, if you want to avoid high interest charges and are willing to start small and grow your sales over time then it’s possible to start making money on eBay without going into credit card debt. Are there any other alternative funding strategies that I missed?
All posts by Ben Edwards