Consequences of Business Debt

by Dave Kahle

Chances are, if your business is at all successful, you are going to be presented with  the opportunity to borrow.  At some point, you’ll need a larger space, more computers, more sophisticated software, and more equipment.  You’ll have to buy raw materials, build your inventory and hire additional people. 

           Now, you are faced with the decision.  Should you borrow? In this piece, I reflect on some of the negative consequences of business borrowing by examining the practical implication of debt and the lack of it.

There are significant advantages to being debt-free.

 1. Freedom.

           If you owe no one, you are free of the burden that debt brings. That freedom means you are free to respond to opportunities that come up. Almost every opportunity to do something new – new branch, new product, new employee, new customer – which could lead to growth requires an investment of time and money.  If some of your time is devoted to paying off debt and you have little cash because you are working on someone else’s money, you cannot respond to those opportunities.  

            You may find yourself neglecting to build for the future because you are too busy paying off debts from the past.  

           But freedom is bigger than just business opportunities. The decision to take a major vacation for example, is a whole lot easier to make when you are debt-free than when you have payments to meet.  Business debt impacts the family.

           You may have an opportunity to make a major gift for a timely cause. Debt constrains that ability, whereas lack of debt provides you the freedom to do so.

Whoever acknowledges me before others, I will also acknowledge before my Father in heaven. But whoever disowns me before others, I will disown before my Father in heaven.

Matthew 10:32-33

Does Your Business Reflect This Verse?

If you own, run or are planning a Christian business you have  great opportunity to embody this teaching in your foundational documents:  Vison, mission and values statements.

These fundamental documents provide the conceptual framework for your business, attract and motivate the right people, and keep everyone on the same page.

Businesses that have created these foundational documents do better than those who have not.

We can help you create your version of these important documents.  Consider our short course: Creating Foundational Documents for a Christian business.

This on-line course walks you through the path to create God-honoring, spirit-informed foundational documents that will serve you and your business for decades.

Learn more here.

           There is also the emotional freedom that comes with no debt. Life is just easier and less stressful when you aren’t concerned about making the next payment. 

2.  Greater likelihood of your business surviving in a downturn.  

           When a business goes out of business, it is almost always because it can’t meet the required debt payments.  That is the event which often signals the end.  In the event of a serious business downturn, you can generally dramatically reduce your expenses. You can lay everyone off, sell off inventory, cancel subscriptions to name a few. But, if you can’t make your debt payments your business will be liquidated.  On the other hand, if you have no debt, your business can survive as long as you are alive. 

            In my story of the impact of 9.11 terrorist attacks on my business, (below) if we had any debt going into that event the business would not have survived the reduction in cash flow which followed it.  

3.  Ability to negotiate better purchasing terms and prices.

           Lack of debt allows you the opportunity to negotiate better prices. In a world where 30 and 60-day terms are routine, almost every vendor will extend a discount for a cash payment.  These 2 – 3 percent discounts can dramatically impact your bottom line.  If you have no debt, you may be able to use your cash to acquire the products and services you need at a discount.

 4. You can invest and give at a greater rate.

            If a portion of your cash flow is going to pay off debt, that portion is no longer available to invest in the business, nor to provide monetary gifts when you see a need.  If you don’t... CLICK HERE TO READ THE FULL ARTICLE

Churchianity or Christianity?