Debt Free Is the Way to Go!
If you are a follower of Dave Ramsey, you know he would be screaming at us for just posing the question. Many of you may never have heard of Dave Ramsey. If you haven’t heard of him, Dave has a very popular talk radio show / podcast on becoming debt free and staying that way. He is a very big advocate of having your business debt free as well. For the record, I tend to agree….
Let’s take a closer look on why you would want to have a debt free business vs taking out business loans.
Listen to the episode on this topic:
#1 Reason Not to Have Debt in Your New Small Business:
You owe no one! Boy does that feel good! Even better, it keeps your costs down and profits up.
Think about it. Let’s say you get a new business credit card with $10,000 amount on it and you use it as a loan to start your business. You need some supplies, tools, shirts, a shiny new phone, etc, etc. You get this card at the bank when you set up your new business account. Your card starts out at 3% but eventually settles in around 22% 6 months later.
Now, whether you have a good month or a bad month, before you even start you are looking at being in the hole $300. So depending on your business, that might be a lot of hustle and you haven’t even paid yourself or bought the supplies you need, gas to get there, you name it.
I Know What You Are Thinking:
“I will never use that $10,000 credit card. It is just nice to have. I feel better knowing it is there.”
Trust me, I use to think the same thing. I had a debt free business and didn’t use the card for a couple of years. Then one thing lead to another and I got it up to the $10,000 max quickly. Just like Lays potato chips, you can’t just use it once. It will just become easier to use it.
I no longer have my business but guess what I still have? Yep, that monthly payment. Life happens. Needs happen. You will use it someday. Don’t be tempted.
If My Business Fails I Will Not Owe That Debt the Business Does
Slow down, not so fast. Normally that isn’t true either. Here’s why. You see, most of you will have a small business that is a single person dba or LLC. Meaning you will be personally liable for the debts your business takes on. While I’m not an accountant, I encourage you to speak to one as I think you will find that you are not as protected as you might think. Most banks and other institutions will make you sign a personal guarantee making you personally liable for any contracts or debt your company takes on. So make sure you know what you are signing up for before taking on any business debt or liabilities.
Can Everyone Have a Debt Free Business?
Can they? Yes. But listen, some of you will have local small businesses that there is no way around it. A great example will be a Doctor or Dentist setting up their practice. Some quick service fast food chains would be another example. However even these folks need a very good business plan before they even pull the trigger to identify what they need to produce monthly to not only carry the loan, but how they will get those suckers paid off as quickly as possible.
So How Do I Get My Business Up and Running?
For the majority of small business owners, you can by your supplies and tools as you go. You do not need the shiny new ones, get the used ones off Craigslist or eBay or the person going out of business (maybe they are going out of business because they took out loans they couldn’t pay..lol)
As part of your business plan we have discussed how you need to crunch the numbers before you start on what your start-up costs will be. Before you make the leap, work an extra job and put it towards the tools or equipment. But for most small business owners, you do not need a loan. You need your vehicle, you skill and the basic tools to get the business going. Then as you build you add more services you can do once you purchase the new equipment you need. Or maybe rent as needed. Especially for larger pieces of equipment or tools that you use once in a blue moon.
Having a Debt Free Business is Choice
I can hear some of your now… “There is NO WAY I can start this business without taking on debt. I need a truck, I need these tools, I need some business cards, I need, I need, I need.”
Listen, I get it. Bottom line is, you are going to do what you want to do. But let me ask you… Do you have debt in your life now? When thinking of doing this business are you wondering how much business you need to do a month to cover the bills you have? Are some of those bills credit cards? Cars? Old Student Loans? Are you freaking out on how you will pay these during the slow months or if the business doesn’t take off? Taking on business debt will just make this 10 times worse and the heavy load will wear you down.
Having a Debt Free Business Means You Will Make Better Decisions:
When you start your month off already in the hole that $300 we discussed earlier, your motivation is to take any job you can to make enough to pay that $300. Let’s say that you get a call to do a job that just doesn’t “feel” right. The customer is pushy, demanding and unrealistic about what they want. However, it pays well. It pays $300. Your gut is saying “RUN!!! Don’t do it, you will regret it.” The problem is, your wallet is saying, “Dude, you got to do it, we need that $300 to pay for the truck and tools”. Who do you think you will listen to?
Next thing you know, the customer makes you redo the project 3 times, then demands a discount. Your extra labor, product costs, gas, etc have you breaking even on the project. Now you have two issues… You still owe that $300 and you lost out on other jobs you could have been doing vs messing with her project.
If you didn’t have the $300 weighing on your mind, do you think you would have run when your gut instinct told you to? You bet you would have!
So, Will You Be a Debt Free Small Business?
Hopefully you can see there is a major advantage to having a debt free small business. For the average tradesman or mobile local small business owner this should be very doable if you set your mind to it.
For those of you that just have to take on debt, please have a plan. Make sure you build into your business plan these 2 key things: #1 – How much business you must do to pay your debt. It must be part of your built-in costs for the month. #2 – Have a plan on how quickly you pay this off and get your business debt fee as quickly as possible.
We want you to be successful in your new business. We want you to be very profitable. The best way to do this is to not stack the deck against yourself before you even get going. Do your best to be a debt free small business or at least have a plan to get your new small business debt free as soon as possible!
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By the way, Did you know these two businesses are debt free?
AMEX and MasterCard (Ironic huh?)
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