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How to Run a Business Debt-Free

4 Minute Read

Business owners always ask if Dave's personal financial advice—budget, stay out of debt, save, and give—applies to business as well.

Of course it does! Most business leaders, however, have the most trouble overcoming the myth that small businesses must have debt. You can't make large purchases without debt, right? You can't upgrade computers, make payroll, or make big deals without debt, right? Wrong.

The Borrower Is Slave to the Lender—Even in Business

Debt dramatically increases risk, as many business owners learned in the recent economic downturn. Businesses without debt not only survived, they prospered. They made deals and bought out their competitors for pennies on the dollar, because they used their money to grow—they didn't have to make payments.

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Mistakes are also magnified by business debt. Entrepreneurs are idea people—enthusiastic idea people who can't always tell a good idea from a mistake at first. If you finance your "great idea" with debt, you're betting the survival of your enterprise on the success of your "great idea." Failure means years of payments or bankruptcy.

Myths and Truths About Small Business Debt

You may think you need to borrow money to start your business or cover cash flow fluctuations. The truth is, most businesses are started with less than $5,000, and you can predict and plan for cash flow fluctuations.

You may think you need a credit card to make online purchases, to pay for travel, or to help you keep track of your expenses. The truth is, a debit card is all you need to make online purchases and travel arrangements, and a simple accounting system will track your expenses without charging you 18% interest.

But what about large equipment or real estate purchases? You have to have debt for those, right?

Actually, there are four ways to avoid debt for large purchases, and Dave has done them all:

  • Rent until you can pay for it. Dave rented his building for years until he saved enough to pay cash for it. It wasn't always easy to walk past the loose brick on the sidewalk or stare at the ugly brass in the elevators, but he just used that as motivation to buy (and remodel) it as soon as possible. Weigh the pros and cons of renting versus buying.
  • Outsource it. Dave isn't in the printing business, so he's never invested in expensive printing equipment. He outsources his projects and keeps costs down.
  • Buy used (and ugly). Dave bought some ugly used furniture from a company that went bankrupt. Why were they bankrupt? They had debt because they bought furniture they couldn't afford.
  • Pay cash. Save systematically until you can pay cash.

Making It Happen

Even if you didn't start debt free, you can get there. First, develop a three- to five-year strategy to eliminate the debt by allocating a percentage of monthly profits to debt reduction. Second, while you get rid of the existing debt, create a game plan to pay for upcoming large purchases with cash.

Operating debt free is the first step in the principle of the overflowing cup. You'll save because you'll never want to be in debt again. Your savings will open doors to opportunity when times are tough. And, finally, your cup will overflow, and with the excess you will be generous with your team and your community.

In 20 years, Dave has grown his company to a national winning brand with more than 300 team members who have impacted millions of lives. His company has been named one of the “Best Places to Work in Nashville” four years in a row. EntreLeadership is how he’s done it. Get your copy of the new book now!

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