Small Business Credit Profile: Good Start Packaging
Owner Ken Jacobus uses his cash back earnings to fund employee health insurance
Erica Sandberg is a prominent personal finance authority and author of “Expecting Money: The Essential Financial Plan for New and Growing Families.” She writes “Small Business Credit Profiles,” a weekly column featuring small business owners' journey with credit and credit cards for CreditCards.com.
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After taking a year off from his career in media and technology to reflect on what he could do for living that was more fulfilling, Ken Jacobus decided to put his passion for protecting the environment to work.
He took the entrepreneurial plunge in 2009 to launch Good Start Packaging in Bedford, New Hampshire, which supplies compostable foodservice packaging to businesses such as juice bars, restaurants and cafes.
“Disposable plastic is a huge problem. I was concerned about what was ending up as landfill and pollution. I discovered there were interesting companies making plastic from renewable, plant-based materials that are also compostable. So, I started by going door-to-door to restaurants and introducing the idea. I bootstrapped the company, struggled and made mistakes, but also had fun. Now we’re hitting our stride. There is a huge social shift and awareness about the environment and how compostables fit in.”
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It was access to credit cards that not only helped with the company’s short-term requirements, but also were vital to keeping his tight team of employees well cared for – financially and physically.
When did credit cards come into play in your startup?
I had some financial cushion when I started, so I could float the business for a while, because I couldn’t qualify for loans back then. I had no experience in this business and in 2009 no one was lending anyway. It was a little scary. I tried to do everything myself, but the growth was very slow. I knew that you have to go big or go home or you’ll slowly bleed to death.
Eventually I hit a growth wall and had to scale. I was willing to take on more risk by hiring more employees because if I didn’t, I would have been in really bad shape. That meant going into negative cash flow for a period of time. It was a huge struggle, but it made me stronger and built confidence. Would I have liked a few million in VC funding? Yeah, but in the end, it was great. We built up a lean operation.
That’s where credit cards came into play. I had to use my personal cards at first, but I didn’t use them as a long-term financing tool. That was too dangerous. I funded inventory as well as office supplies, phone bills and shipping costs, and never carried a balance.
How thousands in cash back helped offset employee healthcare costs
In the fall of 2015, we were really getting established and some employees were going from part- to full-time. They wanted health insurance, and we wanted to provide it.
We’re a seasonal business, though, so we were reluctant to take on new monthly financial obligations year-round. Then I heard about the Capital One Spark Cash for Business card, and it all came together. I had rewards cards for 25 years and understood the programs, so when I found out that this card offered 2 percent unlimited cash back, I knew I couldn’t do better. I was going to charge a lot and it would give me a steady cash flow stream. This card helped me make the decision to increase the amount of investment we could make in our employees’ health insurance coverage. In this challenging market, it’s the right thing to do. We’re competing with larger companies that can offer more perks and benefits.
See related: How to fund a side business
Offering the best health insurance without cutting into the company’s bottom line is huge. Last year, I earned $36,000 in cash back rewards, and with it we covered 100 percent of the premiums of our full-time employees who needed coverage. This year it will be about $50,000, enabling us to keep up with rising insurance costs while also increasing our employee bonus pool.
Any advice you’d like to share with other entrepreneurs?
You have to understand your cash flow and a lot of people are unrealistic about how long it will take to become profitable. Pay yourself, make sure it’s part of your monthly bills. Just don’t finance your business on credit cards. Because of the interest involved, it’s too expensive to hold onto credit card debt. When money is tight, you won’t be able to afford to lose anything.
I believe that we formed a relationship with lenders a bit late in the game, so start as early as possible. Looking back, I wish we did it sooner. Same thing for credit cards. Find a company where you believe in their values and the way they do business. Besides cash back, we needed extra call center support. Sometimes our employees have to make calls to deal with billing questions and the Capital One customer service representatives are really helpful. They also provide integration with our accounting system, making entering and reconciling expenses much less labor intensive.
If we didn’t have the credit card I would still find a way to make this business successful, but why not make it easier? It’s crazy not to use it. This year we are going to get tens of thousands back for healthcare and bonuses, but you can also use it to take a take a vacation, and that’s also important.