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.
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?