Debt Is Not Always A Bad Thing
Wednesday, February 23rd, 2011
When is debt not the evil thing we think it is? When it is business debt. Here you can have a balancing act between needing money to grow your business and getting under a mountain of debt and having it crush you into bankruptcy. I’m going to share some insights that made me a millionaire as a businessman. They’re simple and will work for you too.
When are business debts are a good idea; when I need the money to grow my business. I sell a product and get paid for it in 30 days, well sometimes they push it to 60 days. I need operating money to cover that period and the more money I can have out the more money I can make.
Remember you only make money if they actually pay you. If you are so busy with new accounts, which is the fun part, you might get a little sloppy with collecting outstanding accounts, which is not the fun part.
If you get too far behind and cannot service (pay) your debts someone will come and take stuff from your office until they are satisfied you are even. This really is not good for company morale and yes I have seen it done.
Business debts are normally for investing in something business related. Inventory, a building, payroll, even patent applications. Most lending institutions have a higher respect for business ventures and apply a much lower interest rate to those types of loans. They know from experience that a business is way more likely to make money and repay the loan. Compare this to someone who wants $5,000 for a new wide screen TV. The lender knows the TV will lose most of its value the second it leaves the store and is a higher risk for them, so they charge a higher interest rate.
While most businesses do fail in 10 years, not many of them are trying to fail. Lenders understand that and overall give better terms and rates to business loans. Businesses can use that leverage to grow their business much quicker. You still have to apply good money management skills or if it goes bad, it normally goes bad with a lot more of your money at stake.
You get good money managements skills from your personal finances. Learn to save money, keep your credit card balance at zero, invest in things you know and repeat this until rich. The same with a company, keep your customers happy, keep debts low and cash flow working, and invest in things that get you more and better clients. The most important thing is, when you get a concept that works, work that concept until it does not work anymore. Do not change something that makes you money.
Too many business owners love to spend money and do not like to collect money. This will kill your business, make sure you have the ability to sell your products to clients you know have a high probability of paying you. This skill is often learned the hard way, meaning they don’t pay you and you go under. If you have no experience it can be worth it to hire someone who can keep an eye on your receivables (money owed to you).
There are a lot of lessons in this article, how to use debt, how that same debt can crush your business. How personal finance habits can and will affect your business and to know when to hire an expert. I hope you can use these and grow your business into a huge success, the more of us that are out there the better.
By: Ward Willison