Financial Accounting: IFRS, 3rd Edition

CHAPTER 10 Liabilities

FEATURE STORY

Financing His Dreams

What would you do if you had a great idea for a new product but couldn’t come up with the cash to get the business off the ground? Small businesses often cannot attract investors. Nor can they obtain traditional debt financing through bank loans or bond issuances. Instead, they often resort to unusual, and costly, forms of non-traditional financing.

Such was the case for Wilbert Murdock. Murdock grew up in a low-income housing project but always had high goals. His entrepreneurial spirit led him into some business ventures that failed, such as a device to keep people from falling asleep while driving. Another idea was computerized golf clubs that analyze a golfer’s swing and provide immediate feedback. Murdock saw great potential in the idea. Many golfers are willing to shell out considerable sums of money for devices that might improve their game. But Murdock had no cash to develop his product, and banks and other lenders had shied away. Rather than give up, Murdock resorted to credit cards—in a big way. He quickly owed $25,000 to credit card companies.

While funding a business with credit cards might sound unusual, it isn’t. A recent study by the London-based Institute of Directors found that more than half of companies seeking bank financing had been turned down. About 20% of the 1,000 companies studied relied, at least in part, on credit card financing.

Murdock’s credit card debt forced him to sacrifice nearly everything ...