2 Big Reasons Why Borrowing Money Is Bad Business

We see if every day. On TV, radio, and all across social media. We’re bombarded with credit card advertisements and bank loan deals. Not just for personal, but business purchases, persuading you to “Fuel your business dreams today!” or reeling you in with “Cashback for other business purchases!” We live in a world where borrowing money is a click away, and we were taught a new business meant a new business loan too.

Enough is enough!

I’ll state this very simply - You DO NOT need to borrow money or use a credit card to start and grow your business.

I’ll get more into the Why’s and How’s to run a ddebt-freebusiness in the near future, but today I want to specifically explain two reasons WHY business loans are purely bad business

 1. A good portion of your revenue and profits will go back to paying off the loan.

Imagine you just started a business making funky coffee mugs with trendy sayings. You sell each one for $20, but they cost $10 (materials + your time) to make. That’s $10 leftover in profit for each sale. (Not a bad return - 50%.)

Just after you started you took out a $10k small business loan for a special mug printer, some printing, packing, and mug materials, a fancy new laptop, and a full home office makeover with new furniture. With interest, this loan has you paying $300 a month over a period of 36 months (3 years). 

Just to pay the loan back, and not miss a payment, you would need to sell 30 mugs a month. That leaves zero profit after paying the loan back. And you need to do it for THREE YEARS. Just in time for your laptop to need replacing. If all your profits are going to the loan, there’s no money for growth. What type of business is that?

This can be emotionally draining for a new business to see money come in and go right back out the door. The excitement of owning a new business quickly dwindles, decide owning a business isn’t for you, and shut the doors on your dreams just as quickly as you started. That’s not fun.

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2. The best growth is green and organic.

Organic growth is a company’s growth rate achieved by increasing output and enhancing sales internally, in return, earning more compared to the prior year. It means taking what you already have and using that to make more money.

It, in turn, is the description of a truely healthy business. Sure, it may be slow going at first, but it’s a business that’s in the green, not red.  And just like your food, greener and organic is healthier! Since you’ll have no loans to pay off you’ll increase your profits faster too!

The ultimate indicator of the financial health of you or your business is rated by net worth. Net worth = your assets minus(-) your debt. This is a number you always want in the green (positive). If you have $5000 in assets but owe $10000 to the bank, you’re actually -$5000 in the red. Yikes. This also means, if you decide to close your business doors for an unforeseen reason (poor health, lack of success, etc.), you STILL OWE money on it long after your last sale.

Why would anyone want to be in the red if it can be completely avoided?

As a debt-free business owner myself, I strongly believe you don’t need debt to start and run a business. And although it may feel impossible, if you have business debt you can totally get out of it.

I talk more about these points and a lot more in my FREE 15 minute webinar. Join me live to find out WHY you need to run your business debt-free, get your business debt questions answered, and find out how you can start a debt free business or get your current business debt-free. What have you got to lose?

How I Did My (Tax) Free Office Makeover

If you run your own business you should be saving a percentage of your earnings to cover your business taxes when tax time rolls around.

When I started my business in March of 2018, I decided I’d put away 50% of my revenue. Yes, half.

Where I got the 50% number was partially from my accountant. We both knew putting away 50% would easily cover taxes at tax time (generally taxes fall somewhere around the 30% mark here in Maryland for an LLC). But I wanted to also have a generous buffer over the 30% (it was my first year of business after all), and I also wanted to keep a little left in the account to invest back into my business.

Well, tax time came around, I paid my taxes, and guess what? I had a nice cushion leftover in my business bank account. Sure, I could’ve paid myself that money, but yet another approximately 30% would be taxed as payroll. So how to avoid those taxes? Use the money for business expenses - most of which can be used tax free.

Instead of using that pre-tax business money to invest in conferences or hiring help, I decided this would be the year I’d want to use the money to remodel my home office.

If you’ve been following me, you know my home office was NOTHING to brag about. Sure, it was a nice space, complete with nice natural light, and new hardwood floors (which were a part of the house remodel we did in 2017), but it was the catch-all room/guest room. We have no idea the last time it was painted - it was a dirty off-white - and so much of my stuff in the room didn’t belong.

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So, first I started with my budget.

I had $2364.70 to spend. That sounds like a lot, but when you factor in the paint and trim (I wanted to hire it out), that only left me with $1300. And let me tell you, when you’re buying furniture, $1300 goes fast!

I decided my top home office priorities were a minimal desk in the center of the room, a light color rug (it’s a no-kid zone and the floors are dark so it’s totally justified), and 2 bookshelves. If I had to, I’d sacrifice items like a new office chair because I could live with what I already had.

My inspiration was taken from the same piece my branding took inspiration from - this art piece from Target. So my color palette was pretty set. I love the colors. It’s calming, professional, and feminine. I wanted mostly white with gold, rose, and navy accents.

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So I started shopping.

First I purchased the rug. It was easy. I knew what I wanted, it went on sale at RugsUSA.com, and I bought it. The texture is to die for. It’s like your favorite cream sweater - beautiful and makes you want to touch it. You can buy it here. Like the reviews, yes it does shed, but I’m hoping after it gets vacuumed a few times and settles, it’ll stop leaving little dust bunnies on my dark floors. Only downfall, I had to get the 5x8’ because the 6x9’ would’ve been to long in the 9’ direction. If they had it, I would’ve purchased an 8’ square.

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The desk was probably the hardest to shop for. I wanted an open legged desk (it looks lighter and more minimal in a smaller room), white, ideally with gold accents, with drawers. And because my current free-facebook-find desk was 56”, I wanted it larger than 48”. However, apparently anything larger than 48” was either not meeting the rest of my requirements, or was out of my budget. So I landed on this beauty.

So far I’m not missing the added length. Maybe when I use my WACOM monitor in addition with my dual screen setup it’ll feel cramped, but I don’t typically need 3 screens. It was easy to put together, it’s sturdy, and the drawers are the right size.

The chair is a Facebook Marketplace free find, so it won’t be staying long-term, but it’s surprisingly comfy, and neutral enough to not bother me to the point of immediate replacement.

Like the desk, the shelves were hard to finally pull the trigger on - but not because I couldn’t find them. I found what I was looking for, but there were two different sizes at two different prices. It took a few weeks to decide which I’d prefer.

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One set was only 30” wide and only 70” tall, but it had 5 shelves (not including top). The set I finally landed on was 80” tall and 36” wide. I’m really glad I went with something taller and wider. It just fits the space so much better. I had to pay for the extra height and width, but I don’t regret it. You can find the same shelves I purchased here from Wayfair.

The rest of the money went to accessories. Sure, they aren’t necessary, but I was also trying to “finish” the room as much as possible and tie it together. So I bought a few things I either came across or knew I wanted to add to my office - a curtain rod, blush colored iPhone stand, some rose colored frames, some gold accessories, and a lamp.

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I also wanted a pin-board for all those notes and images I can never seem to find a temporary space for, and almost right away I found this gold and white pinboard on Michaels.com that has the same design as my shelves on the opposite wall. It was meant to be. So I bought online and picked up in store - easy peasy.

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The one item you can consider a non-home office investment went to a new ring light for photos and videos. I landed on this one and I’m really happy with it. It may not “go” with the office, and it certainly doesn’t make it look beautiful, but I’m already getting use out of it. If you’re interested in getting one, I would recommend the one I bought here.

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So that’s it!

You can expect I’ll be moving some things around, organizing more as time goes on. I may even purchase a few more white storage boxes. But for now, this is what my savings and tax prep got me - a newly remodeled home office!

What do you think? Are you saving up to use business money to use to spiff up your own home office? What look are you going for? Let me know in the comments or tag me on Instagram at @laurenaustincreative.

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