Business owners need money. Its no secret that cashflow and captial is the key to being able to get the things you need to run or grow your business.
Every small business I started was founded on an idea and then a sale. I'd sell the idea, see if there was interest, get a sale and then build the product. I never misrepresented that I had it, I always said, will you buy it and be my first customer. Someone always did. Though I did not know what I was doing at the time, I was funding my business through my own sales.
When I meet with Entrepreneurs for coaching the first thing I hear them say is that they need money. Why? I ask? They always tell me about the need for more people, more programmers, more equipment, more of something. Then I ask, "Would you go out of business if you don't get the money?" The answer is usually yes, then when I probe and ask if they could struggle a little longer and find a way to make it work, they usually say they could do it.
We have trained small business owners to think their business will be more successful if they can borrow money. Who has push this concept? People who lend money. Why? Because they end up making money on you or owning a piece of your business.
Sadly, most businesses that THINK they need money don't need it at all, or don't need as much. And when you get that money you end up being careless with it. I know, I've done it and so has every small business owner that borrows money. When you have money in the bank it changes your mind-set, you feel able to spend on things you would otherwise not buy.
What you really need as a business is income. When you borrow you have money to pay back. Though we all have this vision of how well things will go, a high percentage of business loans fail because things never happen as fast or as perfectly as we imagine them. We read about superstar success and imagne we're the next hot business start-up but sometimes we're not.
There is nothing that puts a damper on you faster than debt. It changes your mindset when you have the cash, and it makes you live in regret once you've spent it and that debt is hanging over your head.
Oh, and the worst part is that debt has strings. Usually its a personal guarantee. Suddenly your spouse is angry when you loose the house and your life is in disarray.
At a young age my dad gave me some sage business advice, which at the time I thought was foolish. But, he was right. NEVER EVER sign a personal guarantee. Never. No matter how much you are druling over the possible money you will get. I never have, ever. And in those anxious times when business is bad and I need money or a credit line and I decide to break my own rule and try to borrow, the personal guarantee always stops me. I have operated my business for decades without a loan or a personal guarantee. (Note: I did borrow some money from my dad one time when I got into a bind, and it backfired bigtime. More on that at another time.)
The strings that come with debt go beyond the personal guarantee. Loans can come with all kinds of strings in order to assure they get their money back, which can be as honorous as the bank taking control of your business, a seat on your board, even the ability to oust you and put someone competent in place. Be very careful what you sign. But even though those strings often don't exist, there is a banking relationship that can go south and a banker or family member or investor filing a suit against you or forcing you to do things you believe are best for your busienss.
I personally can't sleep knowing I have debt. I don't want to own anyone anything. Once time I started a venture funded business and raised millions. Suddenly I was answering to a board of directors and my business ended up being pushed in an entirely different direction than the original vision. Turns out my vision was invented later by someone else who made it hugely successful and the direction I was pushed in failed. Oh, and when I first raised the money I had 70% of the business and after additional rounds of funding I ended up with 2%. It killed my motivation, I became an employee and lost control.
The bottom line is that SALES=INCOME. INCOME is what you need to fund your business, not debt. Most people borrow before they have many sales or before they are good at selling. Most failures come because the business could not SELL the product. So its black and white to me. Sell something.
I have to admit that my business growth was slow. But, most of my business life I've lived without debt, without investors breathing down my neck, without having to look family members and friends in the eye about having lost their money (though there were some) and no one was directing me to do what they thought was best.
My philosophy? When you need cash, make a sale. It works. One time I wanted to hire this great sales guy because I was doing all the sales. At the time the cost to get his was $90,000, which I could not afford. So, I determined how much money I would need monthly to get him and how long it would take till he was paying for himself. I determined that I needed 180,000 in sales to pay for him.... 50% of it to pay for the product I'd be selling, 50% to pay for him. I then broke that out into a monthly figure. So I went out, worked like crazy and drumed by new business agreements totalling $15,000 a month. I assumed that he would start paying for himself after about 8 months but if I was wrong I had the cash. Then I hired him. It took about 11 months before he was paying for himself.
This is a simple process. Figure out what you need and make a sale, but make sure you cover the cost of what you're selling in the figure you need. I used this process my entire career and built my team one sale at a time. Everytime I needed a team member or a piece of equipment, I went out and made a sale.
At the end of the day my business is thriving. I have no debt. I have no strings. I have no one telling me what to do (other than customers, which I welcome.) Had I given up equity I'd be regretting it.
As a business owner the most important skill set must master is income generation. Making a sale. Now if your business requires debt to get into then this system might not work for you, though if you think about it, it can work for many businesses.
Ask yourself. Do I really need what I think I need? Can I get by without it? Can I make a sale to pay for it?
When operating your business you need to master SALES and CASH FLOW. You also need to think LONG TERM. Thinking short term you may think a little debt is ok because you know in your heart you will crush it. But if you fail you have strings and a debt to pay off, which makes your life more difficult. And its not right to walk away. If you think long term, not try to be in a hurry you'll end up owning 100% of your business, and you will have done things your way.
Borrowing money is important for some businesses but most businesses I consult really don't need it, they just have convinced themselves they need it. But, its a no win trap. Though my way is a contrarian way there are thousands of very wealthy people who mastered this technique. Your banker is your ability to sell. Stop borrowing and go sell your way to success.
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