Your business is your passion, your
livelihood, and your legacy. You want to see it succeed and thrive, but
sometimes that can be a difficult task. It requires a lot of resources to make
your business grow - time, effort, and of course, money. You know all too well
how hard it can be to balance the money coming into your business with the many
expenses your business needs to keep the lights on.
That’s where debt comes in.
For many entrepreneurs, the idea of taking on
debt can feel counterproductive and even taboo. After all, debt means owing someone money rather than saving or
pocketing the money yourself. Or, you may have even been taught that taking on
debt means you’re wrong or bad or can’t succeed on your own. However, this is a consumer or employee mindset,
not the mindset of an entrepreneur who will leverage all available resources
for growth and creation, not consumption.
Leveraging debt can be a powerful tool for
growing your small business faster than you’d be able to just by saving your
funds. In fact, saving your way to your
goals is not only one of the slowest ways to get there but can often be a death
sentence for a business that is on the cusp of major growth.
If you aren’t sure how to finance your
business’s growth or feel resistant to the idea of taking out debt to do so,
read on to find out why you don’t need to be afraid of going into debt for your
business and how to do so in a responsible way that sets you and your business
up for success.
Recognize Where Your Business Needs Support
In order to plan for your business’s growth,
you first need to understand where your business’s needs are. This might seem
rudimentary, but this is the most important step in order to make smart
borrowing decisions later.
Take an honest look at your business to assess
where it needs more support or improvement. The easiest way to do this may be
to consider what parts of your business you find to be the most frustrating and
what tasks are the most time-consuming. For example:
●
Do you want more customers, but
feel like you can barely keep up with your workload as it is?
●
Do you spend hours a month
fighting with your printer?
●
Are you manually tracking your
expenses on your own or unsure if you are paying too much on your taxes because
you don’t really know how to work with your bookkeeper and CPA?
●
Are you clear you have a great
service, but now need to invest in getting more clients in the door?
●
Does your revenue ebb and flow
rather than stay consistent?
By getting clear on where you are now, and
identifying your next highest leverage investment, you can clarify exactly
where you would invest if you had more money available to you and determine how
quickly your investment will pay off.
How Much Is Your Time Worth? - Doing the Math
Next, you need to look at the cost-savings
that could be gained by eliminating or improving these problem areas. Remember,
money is infinite when you know how to earn it, and as a business owner you
surely do when you stay focused on earning, and hire out as much of everything
else as you can, leveraging credit to support you. It’s your time, energy, and
attention that are non-renewable resources.
This is where most borrowers meet their own
inner resistance. To many, it seems counterintuitive to spend money on
something that we can do ourselves or do for less. But there is nothing more
valuable to your business than improving inefficiencies and buying back your
time. By doing so, you have more time to invest back into your business.
Think of your business as a bow and arrow, you
pull back on the arrow (go into debt) in order to launch the arrow (your
business) forward.
For example, you may have a printer that
prints slowly, jams constantly, and requires hours of your attention every
week. Let’s imagine it cost you $100 to purchase this printer but would cost
you $70 a month to rent a more reliable commercial printer. On the surface,
it’s obvious that you save money by buying a lesser printer one time than
renting a commercial printer every month.
Or does it?
Let’s say it takes you 60 minutes a day to
print using your own printer, but would only take 20 minutes a day to print
using a commercial printer.
By using a commercial printer, you would save
yourself 40 minutes a day, which is equal to 3 hours of saved time a week. If
you save 3 hours a week, you’ll have gained back 156 hours of time over the
whole year - that’s 19.5 days of time
saved.
If you make $200 a day in your business, you
could potentially generate an additional $3,900 over the year just because you
spend $70 a month ($840 per year) on a better printer. That leaves you with
more than $3,000 in additional revenue.
Aside from putting that time back in as
working hours, imagine what else you could accomplish in 19 days:
●
Attended a continuing education
conference
●
Learn a new skill for your
business
●
Interview candidates for an
assistant to free up even more of
your time
●
Take a family vacation or enjoy a
hobby
When you think of your investments in terms of
how much time using money can free up, you’ll see how valuable your time really
is and how many doors you can open by leveraging credit to get you the money
you need to “buy back your time” as Dan Martell illustrates in his book, Buy Back Your Time: Get Unstuck, Reclaim
Your Freedom, and Build Your Empire. (A read I highly recommend!)
Taking on debt can help you to invest in new
equipment, expand your services, or even hire additional employees that you
need in order to increase your capacity and thereby support you in earning more
revenue.
Once you’re clear on where you can leverage
credit to free up time in your business or to help you hit your goals more
quickly, you need to understand the different types of financing available to
you. There are many options out there, from business loans to lines of credit
to credit cards. Each has its own advantages and disadvantages, and it's
important to choose the one that best fits your business's needs.
Before applying for financing, explore your
options and take the time to understand the terms of each type of credit line
or loan.
It's also crucial to have a good credit score
and a strong financial history. Lenders will be looking at these factors when
considering your loan application, and having a solid foundation can greatly
increase your chances of being approved.
In all cases, be sure to open any loans or
lines of credit using your business’s Tax Identification Number, and whenever
possible ensure that your business credit will not report on your personal
credit score. If you aren’t sure how best to do this, contact us so we can help
you consider all the options.
Create a Plan with Help From a Trusted
Business Advisor
When considering taking on debt to grow your
business, it's important to have a clear plan in place. Creating a business
plan for exactly what you'll be using the funds for, how you'll be paying them
back, and how much revenue the investment can generate will illuminate what
borrowing options make the most sense for your business.
But even with the best intentions and
planning, taking on debt can be a risky move. That's why it's important to work
with a trusted advisor who can guide you through the process and help you make informed
decisions.
When you work with me, I’ll help you evaluate
your options, identify potential risks, and create a cash flow forecast so you
can see how your financial investments will affect you in the short term and
how they’ll support your business for long-term growth.
To get started, schedule a free 15-minute discovery call to learn more about how I can guide you to make smart decisions for your business and empower you to invest in your business and yourself without fear.
This article is a service of Ganvir Law, Personal Family Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a Business Strategy Session for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.
The content is sourced
from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source
believed to be providing accurate information. This material was created for
educational and informational purposes only and is not intended as ERISA, tax,
legal, or investment advice. If you are seeking legal advice specific to your
needs, such advice services must be obtained on your own separate from this
educational material.