In this post I intend to argue why you’re always better off running your business debt free. Before I list my reasons, I want to make one clarification though. I am not arguing against selling equity in your business to a VC or something along those lines. I’m arguing against using credit cards and business loans to fund and grow your business. If you can’t raise the money through investors or build the business organically, then what flaws are others seeing that you are too excited to notice? I’ve heard many people argue that this is impossible. The reality is that most of us entrepreneurs get way too excited, dive into unexceptional ideas, then when we can’t figure out how to get the idea off the ground so we in-debt ourselves. Thereby taking absurd gambles in an economy where the failure rate is extremely high. It’s been said that you can be profitable and bankrupt. The lack of cash businesses carry cause many great businesses to fail. It doesn’t have to be that way. Here are my top five reasons why it’s worth the wait to grow a business slowly and without debt.
1. It hurts more to spend your own money. Getting a large loan will make you feel like you’ve got it made and spending it won’t cause as much pain. Having to make your actual limited funds work for you at first will enable you to build an extremely efficient enterprise right from the start. Does everyone in your office really need the newest iPhone and Mac to make their sales calls?
2. A debt free business is far more stable. If you don’t have to constantly make sacrifices just to meet your next payment, then you can focus on what’s important to your business in the long term, not in that given month.
3. When the recession hits, you’re still ok. If your business slows for some reason, not having a pile of bills will help you weather the storm. This means once the storm is over, you’ll have a larger market share since many competitors will have likely not been as wise.
4. You’ll be able to sleep at night. With less risk come less stress. Is moderately faster success (or failure) worth your health and well-being?
5. You’ll feel a great sense of accomplishment. Having done the hard work of building a business debt free, which many entrepreneurs insist can’t be done, will give you great satisfaction and be a great showing of discipline and prudence.
It took me years to be convinced of this stance, and I doubt I’ll be converting anyone with this post, but having a conservative financial approach to your business will always help you in the long run. Taking on debt doesn’t make you a hot shot, it just makes you lazy.