Time To Make A Life Decision

Sarah says her dad thinks she should apply for whatever credit cards she can get in order to build her credit. Sarah wonders if she needs credit and is scared to close her credit cards.

QUESTION: Sarah in Austin says her dad thinks she should apply for whatever credit cards she can get in order to build her credit. Sarah wonders if she needs credit in order to open a business and is scared to close her credit cards. Dave thinks her dad is wrong.

ANSWER: I disagree with him. I don’t think you need credit to open a business. As a matter of fact, I think it will ensure your failure if you go into debt to open the business.

Here’s the statistics: 80% of the small businesses that open fail in the first five years. The primary reason they fail is financial problems. The primary reason for their financial problems is their debt. Every time you borrow in business, you magnify your mistakes. There’s only one thing you can be sure of in business, and that’s that you’re going to make mistakes. The size of your mistake is increased when you borrow into the mistake. You’re much better off to build and start a business small and with cash and feed it from its own profits and let it grow that way.

I’m not sure I can help you. He’s not going to change. You’re going to have to decide if you’re going to go in business with him or not. If you go in business with him, you’re going to be in debt. He likes debt. So far, he’s survived it. The truth is I’ve been doing small business counseling for 20 years and been in business myself, and the vast majority of them that fail are because they think they can play with snakes, and the snakes bite them. He and I are polar opposites on this, and I guess that’s going to force you to make a decision about your life. The problem is if you give up credit cards, that pretty much ensures you’re not going into business with your dad. You’ve got to make those calls, and those are tough calls to make at 22 years old. You’ve got to decide how you’re going to live. It’s going to be difficult for you to resist the pressure you’re getting. If I’m in your shoes, I’m going to go with your gut. I think you’ve got good instincts. But this is more than just a decision to cut up your credit cards because as you said, it’s a redundant $100,000 in debt after you got rid of $2,000 in credit cards, I guess. You’ve got to think about how you want to live your life, and it’s okay. You’re not a bad person. It’s just a matter of what my research and what my life has shown me that causes success versus your dad does it the “normal” way. So far it hasn’t taken him out. But I’ll tell you it’s the number-one cause of failure in business. I don’t think I’m going to convert him to my way of thinking. I don’t want to give you hope that that’s going to happen. I would be shocked if that happens.