Starting With Debt
Borrowing against your paid-for house to open up a small business is a VERY dangerous move.
QUESTION: Keith asks Dave if it’s wise to borrow against his only asset – his $70,000 house – to follow his dream and buy a $40,000 mobile bakery business. Dave thinks this is a very VERY dangerous move.
ANSWER: I believe in owning a business. I’ve grown my current business and counseled others on how to run theirs. But I’ve counseled people for 20 years on debt, and I learned that you have to be smart and not borrow against a paid for house to start a small business. Failure is very real and you have to realize how hard it is to make a bakery succeed.
The number one reason that small businesses fail is cash flow problems; meaning they can’t pay their payments. We paid cash for this business that we’ve grown, a little bit at a time. Buy the business by paying them half the profits until you’ve paid them $40,000. Don’t borrow money against your house to do this deal.