Business debt and personal debt are completely different
I want to get personal about a common myth I see with business owners. It is about debt. I see these business owners viewing debt with the wrong set of glasses. Business debt and personal debt are two completely different animals. It’s like calling a leopard a lion and a lion a leopard. They are both cats, but very different animals. Personal debt has a different purpose than business debt. I would agree racking up personal debt is not a good practice, but that is where I stop agreeing with my clients that may struggle with the concept of business debt.
During a big growth pattern, most businesses will need to take on debt to continue to grow or find an angel investor to fund their operations. This is especially true in the product industries. It may be less true in the service industries, depending on how rapid the growth is. I’ve seen several retail businesses struggle to survive because they wear the badge of “no debt” with honor. Their business has a healthy balance sheet, but a very anemic income statement. Then they come to me wondering why growth has suddenly stopped. It is because you stopped feeding cash to your business.
Cash for a business is equivalent to high-calorie food for an athletic teenager. They need all the calories they can get to keep growing and building muscle. A business is no different—they need cash to continue to grow. My clients who have taken this advice have seen double-digit growth in their business. I coach them when to take on debt, how much debt to take and how to use the debt. The amazing thing for most of my clients is the debt disappears within 30 days, so their balance sheet is strong and the income statement is really robust.
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Blog by Jason P. Bailey, CPA – Business Services Manager, Senior Tax Professional
Learn more about Jason and the rest of the Storen Financial team here.