Money Buzz 10/03 Simple tactics for avoiding bad credit; wooing top-notch talent to your board

Do You Rate?
The continued weak economy has hit small businesses hardest, andmany have struggled to keep their credit ratings intact. Butexperts say that even in a downturn, you can do simple things toavoid bad credit.

For one, you should regularly review your credit report, aseemingly easy task, but one many businesspeople fail to do. Youcan also sell noncore assets, a move that demonstrates to lenders acommitment to pay bills. What's more, experts say, you shouldbe proactive with your vendors. If vendors are not paid on time,they might call your banker, causing your credit rating to slip.Instead, call the vendors first, and notify them of any potentialmissed payments-they might be willing to skip calling the banker.Later, when cash flow improves, reward these vendors by paying themearly.

Finally, if at all possible, stay away from credit cards as ameans of financing your business. According to Robert D. Manning,the author of Credit Card Nation (Basic Books), nearly 50percent of small businesses use credit card debt to build capital,but the cost of borrowing off credit card debt has risen sharplyover the past decade.

Wherefore Art Thou BoardMember?
Once a cushy job, serving on boards is now fraught with risks andis more time-consuming than ever. Shareholder lawsuits are on therise, and directors can be held personally liable and financiallyresponsible for court costs as well as cash settlements andjudgments. Factor in more stringent oversight requirements thathave board members serving up to 200 hours annually, and the jobstarts to seem like more trouble than it's worth.

How does a small company woo top-notch talent to its boards? Arock-solid directors and officers (D&O) insurance policy and anopen attitude help reassure potential candidates, says Bruce E.Beebe, editor of Directorship, a newsletter published byexecutive search and management consulting firm The DirectorshipSearch Group in Greenwich, Connecticut.

"Today, board candidates do a lot more digging to find outif there are hidden hazards," Beebe asserts. "They wantto show the [D&O] policy to their lawyers and to know moreabout the corporate culture, the other directors and the externalauditor. So a young company can provide a copy of their D&Opolicy and say 'We understand that you may want to meet ourdirectors, auditors or other people, and we will make thathappen.'"

While company stock and stock options can also act as a lure,Beebe urges entrepreneurs to seek directors motivated by theintellectual challenge of being part of a growing company-and notby a potential windfall. "Money should not be a primemotivator for board service," he says. "If it is, thenyou have the wrong person."

Jennifer Pellet is afreelance writer in New York City specializing in business andfinance. Joshua Kurlantzick is a writer in Washington, DC.