Debt isn't Inherently Bad or Evil
I had a conversation with one of my best friends recently. He attended a construction industry vendor trade show and sat in on a finance lecture where the speaker told the crowd not to ever take out a loan or go into debt to grow their business. He continued by saying that if you save 2% of profit from each job, over the years you’ll accumulate enough to finance other jobs and then your business can grow. In case you hadn’t figured it out based on my tone, I couldn’t disagree more.
Now, don’t mistake this as an all access pass to open up every credit card, line of credit, and HELOC you can - there needs to be a strong purpose behind the debt.
In the example above the speaker was providing an answer to the question, “I need to hire more employees to take on more jobs, but I don’t have cash flow to hire the employees until I start the jobs I need them for - should I take out a loan?”
In this case, I’d say a small loan would absolutely be smart, especially when coupled with good cash flow management, maximizing employee efficiency, and tracking profitability of jobs to add a little bit more moolah to the bottom line.
This is a perfect example of taking out a small, relatively risk free amount of debt to further your business. He had an offer in hand for more work, and needed more employees to do said work. When combined with the strategies above, he could get by with a relatively small line of credit, and feel comfortable making the jump to hire more employees!
Have you ever taken out a loan or gone into debt for your business?