A school teacher told me that she is going to start a business. In that same breath she added “and I am going to borrow the money to start the business.” Don’t was my answer.
Starting with debt is an easy way to go broke! The reason is very simple. Every single business has seasons meaning that during certain times of the year the business is raking in money. Other times of the year, the business has few customers. Don’t believe it? Let’s review some examples. You are renting umbrellas for use at the beach. During the hot summer, you’ll have lots of business. During the winter, you will probably not be renting lots of umbrellas. Example 2: you own a barbershop. Now you are thinking, hair grows all the time so business must be really steady, right? No. Business booms right before major social events like proms, holidays (when people want to look good for parties), etc. And during recessions, barbershops see declines in revenues.
So what if business has sales cycles? The answer is that revenue will come in waves, while the loan amount you must pay is the same amount each month. The problem is that until you have been in business awhile, you are not going to know your sales cycles. You won’t know how much cash you will need to make future payments. The problem of anticipating how much future cash you will need versus the amount you have to pay out every month is not easy. Finance people call that “managing cash flow.” The problem is that learning to run a new business is hard enough without having to learn how to be your own banker.
When starting a business, you should try to avoid debt so that you can concentrate on selling and producing your goods or services. Worry about paying your monthly debt payments is adding a problem you don’t need to have. For most people starting a new business, the most important issue is selling and making a really quality product or service.
Rather than spending time borrowing money, find ways to avoid the need to borrow money to start your business. Some of these strategies might include: reducing your start up costs like printing your own business cards, using your home for an office to avoid renting, keeping your web site simple, finding suppliers who will allow you to order only what you need when you need it. Start simple so that all your energy focused on marketing the product or service and delivering what you promised.
Starting without debt means you can focus on selling and delivering your product or service.
