How to help your business manage the debt paradox

You’ve finally got your company on solid ground. Now you might consider taking funds to accelerate growth.

A pattern that I often see in small to medium sized businesses is that they become scared to take on debt after they have made it out of the “start-up” phase of their business life-cycle.

When we start our businesses, we are so excited to get going and are willing to sell our firstborn to do it. We take on debt and do whatever it takes to get up and running. We accept the risk and stress because we know it is necessary to achieve our goals of owning our own business.

The first few years are often rough, as we struggle to figure out our model and make all of our monthly payments on time. If things go well, we manage to work our way through it. When our business finally gets on a stable footing, we understandably never want to see another loan payment again or have that same stress. We become complacent and inevitably begin working in our business instead of on it. We settle on using the extra cash flow to slowly grow our business year over year. Exciting, isn’t it?

However, I urge you to reconsider because here is the paradox. We have finally figured out a model that actually works! It’s less risky to borrow money at this point to grow than it was before because you’re not starting from scratch. You have a proven business plan. This is the time to scale up and throw fuel on the fire.

Just try to make sure you are following these three principles before taking on any debt.

1. Never borrow money without a plan

When you’re looking to borrow money for your business, you should always have a strong thesis about how much money you need, what you’re going to do with it, and how it will help your business. Your plan might not work out, and it definitely will change- but you need a plan, and you need to understand the worst-case situation. You also need to be comfortable that if the investments don’t work out as planned, you can still manage the monthly payments.

2. Have your loan structure fit your needs and uses

If you plan to make investments in your business and need an infusion of capital to make this happen, you should do that with term debt. If you need working capital to help with seasonality and timing for payments for customers, etc., that’s a line of credit. You must use the right loan for your needs. Know all of your options and speak to a professional before making a decision.

3. The most important thing is a good nights sleep

If you know that taking on a certain amount of debt will have you stressed out, tossing and turning all night- don’t do it. My goal is never to convince someone to take on debt they are uncomfortable with. My main objective is to have business owners give it some serious thought, look at all their options, and make a decision. Too often I see debt cast aside as a viable option for growth solely because of negative associations.

If you’re feeling stuck, constantly working in your business, and not sure if you’re ready to grow, I always suggest joining an entrepreneur peer group. Simply hearing other entrepreneurs talk about similar challenges they have faced and what solutions did and didn’t work for them is so beneficial. The group also holds you accountable. Without accountability, it’s all too easy to say that “someday” we will start working to achieve our goals. Hopefully, listening to other entrepreneurs stories will help reignite that spark you’ve been missing.

The post How to Help Your Business Manage the Debt Paradox appeared first on Inc.

Original source: Inc.

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