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Chris LoCurto

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January 12, 2011

Oh, I Wasn’t Supposed To Do That?

January 12, 2011 | By | 6 Comments">6 Comments

no credit

Image by TheTruthAbout via Flickr

A fantastic comment came in from the great Misty Gilbert:

“Chris, I do have a scenario recently experienced and am curious what you all would advise. I have a client (doctor) that has purchased a practice that has been in business 24 years. He is not out of debt and is not following The Baby Step principles. In fact, he has a very poor situation with bankruptcy 6 years ago.

I am setting up his practice from the ground up. I know none of this follows the “Dave Plan” but wondered how you would advise a business owner in regards to credit. How do you help someone when you have run into issues getting him a bank loan, credit card machine, vendor agreements, utilities when he has poor credit?

I know Dave would say he shouldn’t buy the business if he can’t pay cash for it, and he can’t. I know Dave would say operate the business without credit cards, and he won’t. Do you feel credit is a good thing in the business world? How would he establish these things with no credit? Maybe this can be a blog post?

For those of you who’ve been through our stuff, and have never run your own business, you’re probably thinking this is a silly question. But the truth is, this is a very common question that we get from business owners. When you step into the business world, you have a hard time finding people who are running a business debt free. They’re out there, you just don’t notice them until you start running your business debt free. Therefore, it seems reasonable to use debt to start and grow your venture. This, however, is a really bad idea.

All throughout the Bible it says that debt is either a curse or it’s something that a fool does. Nowhere does it differentiate between personal and business. Therefore, if you can’t run your business debt free, you shouldn’t be in it. “But how can anyone start a business then?!?!” Save for it. Yes, save money. Sixty percent of all new businesses start on less than $5,000. You need to work like crazy at what you’re doing until you save enough money to move into what you love. Plain and simple. “That’s great, how does it help this guy?”

Well, he’s already bought the practice, so he’s in. But from here on out he needs to run it like they did in the old days. Obviously he shouldn’t be getting any loans at all. He should have proven to himself that with the bankruptcy, debt isn’t the way to go. Instead of a credit card machine, he goes to an old carbon slider. If the issue with getting a machine is lack of credit, he doesn’t take cards right now; checks and cash. Or, get PayPal hooked up to a debit card. Vendors may have to be paid up front for a while until he earns their trust. It’s the same with utilities. You can do a turn on fee and first month’s payment. Is it tough? YES! But I can promise that the sweat equity will be way less stressful than the bankruptcy was!

The biggest issue, (by the way, this was a softball pitch by Misty, she actually knows the answer) is to actually plan for the future. Manage cash flow so you can actually have something to build a business with. Jumping in with nothing and expecting everything to work and make lots of money is an immature way of running a business. Adults plan and prepare. Seventy-four percent of the Forbes Four Hundred say that getting out of debt and staying out of debt is how they became successful.

Last year I started a real estate company with cash. No debt, and I only make moves that I can fund with cash. Plain and simple. There’s no business deal that could make me want to go back into debt. I trust God WAY more than I trust me.

Give me your thoughts on this topic. Leave a comment on this post for others to get involved.


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  • http://medicalaccountsolutions.wordpress.com medicalaccountsolutions

    GREAT Thoughts Chris! Thanks for the post.

  • http://analysisofeverything.blogspot.com/ Jeff Staddon

    A couple months ago I decided to get into a little business venture that was guaranteed to succeed. Well, I have yet to make a penny on it. The good news is:

    1) I invested less than $100 and it was all cash I could afford to loose
    2) I’ve learned a lot

    Eventually I might even figure out a way to turn it around. In the meantime it’s been cheap education–I’ve spent ten times as much on classes that I don’t even remember taking.

    Cash is king! Even (or especially) in business. Thanks for the great post.

  • Sara

    My husband inherited the family business this past year after his dad died. His dad built the business using credit and although many would say it was/is successful I have a hard time accepting the term successful since we are not debt free. I want to see this business run debt free yet the current equipment (without which there is no business) is costing us a bundle to repair and needs to be replaced…. thus the problem. When you are neck deep in a business (that has never been run debt free) with a desire to run it debt free yet are faced with the challenge of buy new equipment to stay in business or hemorrhage money fixing the old equipment to the point that you have no money to save for new equipment what do you do? Or what questions do you ask or criteria do you use to determine which choice is the most fiscally responsible?

    • http://analysisofeverything.blogspot.com/ Jeff Staddon

      Sara, I don’t know the details of your situation, but I can say it’s interesting that you would phrase this in terms of two options–repair old equipment/buy new equipment. It’s unusual that any decision would be made up of only two options.

      Are there any options to bring down the repair costs? Perhaps learning to do basic repairs yourself or implementing a strict preventative maintenance program?

      Is it possible to rent (or partner) with another company that has newer equipment? Could you find a way to make more profit with the business so you could save up for new equipment faster?

      Anyway, just some food for thought. Best of luck!

      • Sara

        Jeff,
        The details are… it’s a carpet cleaning company and the equipment in question is the truck (full size heavy duty van) and the cleaning equipment that is mounted to the engine of the truck (approx $60,000 for a new rig) The current trucks we have are more than 10 years old and have a min 500,000 miles on the engines. The cleaning equipment is repaired and rebuilt as needed by my husband but the trucks are just plain wearing out. A new truck requires new equipment due to the truck manufacturer changing engine specs which causes the old equipment to no longer fit a newer vehicle.
        Partnering with another company is out of the question…. they are competitors and our equipment has been customized to give us an advantage in getting carpet cleaner so their equipment would hurt our buisness.
        There is a possibility of leasing a rig which would give us payment near or equal to purchasing (and we would have to have a large chunk to put down)but we would be caught in the same debt cycle. I was under the impression that leasing is not a wise option.
        The only way left to increase profit (we have already tightened the belt every way we know how) is to charge more… in this economy that could put us out of buisness. We have already lost several accounts due to budget cutbacks and gas prices are not going down. We are not the cheapest company out there (we couldn’t do quality work that way) nor are we the most expensive (we believe in charging a fair amount and not price gouging).
        In my opinion, there should have been a savings plan set up back when the buisness was started almost 40 years ago. My father-in-law didn’t think that way. We are struggling through many things due to his failure to plan for lean times and are using it as a painful lesson of what NOT to do. I know that the famine times only last for a season and then the feast times come around again. In the meantime we are trying to make wise decisions through the famine times so we can make it back around to the feast time. I know there isn’t an easy answer. I sure wish there was!