Q&A: How business startup nailed down credit card debt

CreditCards.com interviews small business owners about how they got started with credit cards. This Q&A is one of an occasional series.

Tyler Wood and business partner Jim McBride decided to hit their company's image and direction "upside the head" in February 2005.

J&J General Contracting, the remodeling business they'd started nearly six months earlier with credit cards, looked like every other remodeling business in the phone book.

Wood, 32, sat down with CreditCards.com to discuss how he and McBride more than doubled sales after they changed the name of their remodeling startup to Home Artisan Authority and tightened its business plan.

Thanks to a marketing company's advice, Wood and McBride dropped building and insurance restoration from their menu of services to focus on remodeling -- 80 percent residential and 20 percent commercial.

On the residential side, they learned something from the marketing company: Women make 95 percent of remodeling decisions.

"I should have known that," Wood says. "I'm married."

From that tip, the partners sought out an all-new clientele: female customers in neighborhoods with homes starting at $400,000. They also changed the company name in November 2006 to Home Artisan Authority. To put it mildly, the changes worked.

The Home Builders Association of Greater Dallas named the company the 2007 Remodeler of the Year. The company also more than doubled its sales, going from $600,000 in 2006 to what they estimate will be just under $2 million in 2007. "In the next five years, we'd like to be a Big 50 remodeler in the U.S.," Wood says. "My long-term goal, in about eight years, is to be doing about $10 million in sales."

Why did you use credit cards to start your business?
When we started out, we each had $5,000 to open the business, and we thought that was a lot of money. After getting computers and insurance, we only had $3,000 left.

When you register a business, you get a bunch of credit card offers. So we got an Advanta Platinum BusinessCard MasterCard with a $25,000 limit. We didn't plan to use it, but we started using it in about a month. When you start a business, you'll do just about anything to make it succeed. Then we got an American Express Business Gold Rewards Card.

What was the basis of your credit card selection? Which cards did you choose and what were their credit limits and APRs?
We were growing fast and needed money fast, so we picked the credit cards on the basis of the quickest response to us.

After the Advanta and American Express Gold cards, we got an American Express Business Platinum Card, a First Equity Platinum Small Business Visa, then a Chase Marriott Rewards Visa Signature Card and last, a Wells Fargo Business Platinum Check Card.

The AmEx Gold card is unlimited as long as you pay it off every month. The AmEx Platinum card had a $20,000 limit; the First Equity had a $10,000 limit; and the Chase card had a $15,000 limit. They all started out with 19.99 percent APRs, except the AmEx Platinum card, which had a 21 percent APR. The Wells Fargo card has a 14.99 percent APR and a $25,000 credit limit.

How did you use the cards?
We used the AmEx Gold card to buy materials, because this was our biggest expense. We used the other cards for gas, lunches, office expenses and a lot of marketing expenses. For example, we'd meet someone at a networking event. They'd suggest that we buy a postcard mailing for $3,000 or $4,000. We'd do that, but we got little return on our investment.

How did you manage the credit card charges?
We paid the minimum each month, about $300 to $325 per card, except for the AmEx Gold card, which was paid in full every month. We were paying about $1,200 to $1,300 each month in credit card bills, including about $360 per month in interest.

We maxed out the Advanta card in about three months, the AmEx Platinum card in about five months, the First Equity card in about four months, and the Chase card almost immediately. We don't carry a big balance on the Wells Fargo card—never more than a thousand dollars.

What were the advantages of using credit cards to start a business?
We used the monthly bills to consolidate at the end of the month. We entered our receipts into QuickBooks, so we knew what was being spent on what. We wouldn't be where we are without credit cards, and we're grateful for receiving them and the credit limits.

The disadvantages?
The debt and the interest were the main disadvantages. It didn't allow us to grow. It just let us stay where we were -- the status quo. You start to see that you're mostly paying interest on cards, and you'll never get ahead. It got to the point where we had become indentured servants to the credit card companies.

We realized in March 2006 that we needed to change the company direction and our mindset to using the credit cards. We saw what was being spent. We stopped eating out all the time for business lunches -- we were spending $600 to $800 a month on business lunches, and $800 a month is $9,600 a year. That was the biggest thing.

Did you struggle to pay the debt?
We weren't struggling to keep the credit cards current. But if something happened to the business, all the debt would be my responsibility. So it really worried me. I just didn't want to be in that kind of debt, and there are other places money can go besides to credit cards.

So we got smarter as business people. Do you really need to go to lunch on Friday on credit cards? We cut out all the self-service marketing and engaged a new marketing company.We charged up the Chase card to engage them. But it's saving us thousands. We pay this marketing company a $500 retainer each month plus additional fees for special projects, and we're paying them through cash flow.

When did you reach the point with cash flow where you were able to pay off the debt?
We had a large commercial job in May 2007 that was finished by the end of June 2007. We decided when we got the job that we would use the money from it to pay off the debt. So we paid off $49,000 in July 2007.

Paying off the debt has let us be a lot freer in our decisions and not have to pay off debt, which was diverting our financial resources. You can't go on living with maxed-out credit cards, because it doesn't leave you any room to maneuver. The debt was a big expense, so clearing it did help our profit situation.

We still owe about $5,500 on the Advanta, and we're paying it off a little at a time. We're trying to pay $300 a month, which is twice the minimum. If we come into a chunk of money, we'll pay it off. It's not a priority, because there are other things we need to pay off more, such as the company vehicles we bought this year.

Do you still use the credit cards in your day-to-day business?
We closed all the credit cards except the Advanta, the AmEx Gold and the bank card. We're still using the AmEx card for materials. We pay it off every month from cash flow, so we pay no interest. We use the bank card for small things, like office supplies or a big company lunch. We use the credit cards only in an emergency, or if we could get a good deal or on something we couldn't live without. We might use them for company Christmas presents, for example.

We have a line of credit for emergencies, and we use cash flow to pay for everything else.

What advice would you give to someone in your industry who wanted to start a remodeling business using credit cards?
They should think about going into business for themselves without a lot of credit. If you get credit cards, you should know what the APRs are and fees for late payments. Be smart about the interest rates and other terms. The biggest thing is to ask someone else who's done it before.

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Updated: 11-23-2017