Can You Run A Business Debt Free?

19 Jun

Can You Run A Business Debt Free?

June 19, 2012 | By Chris LoCurto | 91 Comments">91 Comments

“You can’t actually run a business debt free!” That’s a comment I hear all of the time. In fact, when I teach EntreLeadership, it’s the one subject that tends to ruffle the most feathers. Why? It’s the same concept as student loans. People don’t know people who are going through college (or own a business) without debt, so it doesn’t seem possible to them.

I’m here to tell you, YES IT IS! At each EntreLeadership Performance Series event, I take a few minutes to ask how many people are running their businesses debt free. Every single time, it’s at least 30% of the room. Every time. I then have the rest of the attendees look around, and they’re always surprised that someone can run a business without a line of credit. They see that it’s not only being done, it’s being done successfully.

I’m passionate about making business owners realize they don’t need to accumulate a ton of debt. And on today’s EntreLeadership Podcast, we talk about ways to run a business debt free, as well as obstacles to avoid.

During the podcast, I also interviewed one of our in-house champions, Chris Hogan, about the things he’s learned in all of his years of coaching businesses on their finances. In the interview, we cover:

What small businesses normally borrow for and how they can change
Cash flow, retained earnings and lines of credit
How badly debt damages growth
How to feel safer financially
The myth of credit cards in business

Basically, we tackle the myths that so many have been convinced are musts in business. It’s a super important podcast you are not going to want to miss. Click the player below to hear the EntreLeadership Podcast on Financial Peace for Business.

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If you don’t see the player, click here.

Question: What are your thoughts on running a business debt free?

http://www.middletennesseehousecleaning.com/ MiddleTNHouseCleaning

Great post! I have listened to Dave Ramsey for a few years now and I was adamant about starting our cleaning business without debt…and we have!

My wife and mother-in-law started cleaning houses while I worked a full time job to bring in a paycheck. Now we have hundred’s of cleanings per month in the Middle Tennessee and are cash flowing everything!
Kentlapp

@ChrisLoCurto Absolutely you can and should! Over 20 yrs baby, it’s how we can afford to send another to @EntreLeadership next week!
http://jonahenry.com/ Jon Henry

I’m bootstrapping and couponing now for a business-of-one that has yet to kick off. Its more exciting preparing for the soon-to-be launch without having to suffer the burdens of financial craziness. Debt, and being enslaved to stupid decisions (example: quitting work without a plan) are the quickest ways to kill dreams and force you to make decisions that limit your opportunity. I’d rather work toward a dream than murder it with my own stupidity.
- http://epicenterlanguages.com.mx/our-blog Aaron Nelson
  
  @Jon Henry oooh that’s a big ‘like!’ I’m the problem, and I’m the solution in my business. Love your approach Jon. You’re going to rock!
CabinetDoork

This needs to be in every business owner’s ear! Never had personal debt, so why would I even consider business debt? but I did have business debt once.(I called it “Smart Debt” inorder to justify it.) I was uncomfortable, nervous, and I stifled our growth anyways! I can also tie most of my judgment errors during that time directly to having debt. Decisions that, without debt, I would have made diferently. The worst part of the deal was ownership of the fact that my “Stupid Debt” could have jeopardized the livelyhood of our team. Your team deserves the security of a debt-free business! Please give that to them.
- http://epicenterlanguages.com.mx/our-blog Aaron Nelson
  
  @CabinetDoork That’s a great point: debt threatens employment security for your team. So true! But we never think about that, do we?
KurtScobieMusic

@ChrisLoCurto Been running my little biz debt free for 4 years now. Great post & podcast. Solid advice.
- ChrisLoCurto
  
  @kurtscobiemusic That’s awesome Kurt!! Well done.
  - KurtScobieMusic
    
    @ChrisLoCurto Thanks!
Backyard_Life

@chrislocurto Really good podcast with Chris Hogan. (as though the other episodes weren’t good.)
- ChrisLoCurto
  
  @backyard_life Thanks Raun!
http://www.ricardoequips.com RicardoEquips

I don’t believe in it. I am in school right now taking Music Business at Full Sail University for $53,000 program. I WILL be in debt paying off loans after this because my US Army Montgomery GI Bill will not be able to pay it. I started school 2 years ago and will graduate next year with $500 a month payment to begin. I signed up for this school waaaaay before I even heard of a Dave Ramsey or Financial Peace, or even EntreLeadership. I wish I would have known all this stuff BEFORE I signed up for school. I was so excited to get into A school because of some negative things that I have done as a child has carried over into my adult years. And because of that it makes it harder for me to get certain jobs or even get a decent place to live. But I got faith in God and I’m going to do everything in my limited power to make it out there and debt free in business is a must since after I graduate I’m already in the whole if I don’t get a good job or start my own business.

This is a good subject because I am right now taking Entertainment Business Venture and Financing because the whole course is basically about how to start your business with debt. They actually teach this with angel investors, and borrowing from venture capitalist, or even family members. Though I respect the teacher in our discussion chats with the whole class on Wednesdays, we do bump heads in class because I debate tooth an nail to all the questions thrown out there about going to lenders to start my business. I don’t want to own no many anything but to love them with the Love as the Apostle Paul said.

I’m 33 and in a way I’m just starting my life with my wife of 6 years and my 4 kids (14, 13, 4, 3). But somehow we will make it. I’m behind the curve but I got a positive attitude, a vision, and plan forming, and I’m learning a lot from this blog, the EntreLeadership book/podcasts and Financial Peace University. I have HOPE!
- http://www.ricardoequips.com RicardoEquips
  
  Oh and by the way I praise God and thank Jesus Christ for you guys! Amen!
- http://www.BaptistEducation.org/ JoshuaWRivers
  
  @RicardoEquips I hate learning stuff a little late. Luckily this isn’t the end of the world. Should be just a speedbump for you. God bless you as you try to work the rest of this!
  - http://www.ricardoequips.com RicardoEquips
    
    @JoshuaWRivers Amen! I know. That’s how I am viewing it.
Jeffdrummer

I started my business at http://www.Customstix.com with $500.00 and have run it without any debt the whole time. Some may say it is not fair because I “only” distribute drumsticks, but it is a matter of principle. When I didn’ t have the money to do something I wanted to do, I would fake it. Then I was able to make it happen when the money came in. For example my phone number makes it sound like I have an office with a staff, etc… nope, it’s just me sitting at my home office making it happen shipping drumsticks all around the world.
- http://hardandsimple.blogspot.com/ Skropp
  
  @Jeffdrummer You’re an awesome example!! You’re right, it IS the principle!
- http://ChrisLoCurto.com ChrisLoCurto
  
  @Jeffdrummer Dude!! THAT’S exactly what being an entrepreneur is about. Not fancy desks, or expensive cars, or staffs that you can’t afford. Well done!!!
- http://www.BaptistEducation.org/ JoshuaWRivers
  
  @Jeffdrummer I like that: fake it
http://LouiseThaxton.Net/ LouiseThaxton

I have done it both ways – WITH debt – and WITHOUT. And by far – WITHOUT debt gives more peace, more security. When we made the decision that we would do whatever it took so that we would not have to borrow on a line of credit to operate ANY of our businesses (my husband and I have 4 businesses) – it took some adjustment, some sacrifice, some time, but within one year, we have the reserves we needed (our own personal line of credit!) for the upcoming year. What a feeling of freedom!
- http://ChrisLoCurto.com ChrisLoCurto
  
  @LouiseThaxton I love it! It’s crazy when you have your OWN personal line of credit. It’s like a stress ice pick!
  - http://hardandsimple.blogspot.com/ Skropp
    
    @ChrisLoCurto @LouiseThaxton HAHA a stress ice pick, LOVE it!
cabinart

I took out a line of credit 14 years ago to publish a book. The book sold out quickly, the loan was repaid in a short time, but it just felt wrong. I was on pins and needles until that thing was paid off and decided NEVER AGAIN.

Not sure how I could have handled the shortfall differently – probably needed a partner who viewed debt the same way I did, and we could have waited to publish. Something about being “unequally yoked” comes to mind, or perhaps something about “The only ships that won’t sail are partnerships”.

Fixing to publish another book, this time without a partner and without debt. No hurry, no worry. (Ummm, God, how’re you planning on working this one out??)
- http://ChrisLoCurto.com ChrisLoCurto
  
  @cabinart Isn’t it crazy how much less stress is on this book?!
  - cabinart
    
    @ChrisLoCurto It is the lack of a deadline that is stress-free right now. That, and the lack of a partner! With 170 drawings left to do, there is plenty of time to save up to print the thing. . . gotta change the subject now or I might begin hyperventilating.
    - http://ChrisLoCurto.com ChrisLoCurto
      
      @cabinart BAH!! I have faith in you.
shawngorham

@ChrisLoCurto pretty sure thats the wrong link. Listened to the podcast…no chis hogan or business questions
- lily_kreitinger
  
  @shawngorham @ChrisLoCurto you have to listen on iTunes
  - shawngorham
    
    @lily_kreitinger thanks lilly. still wierd
  - ChrisLoCurto
    
    @lily_kreitinger @shawngorham You were correct sir! Thank you for pointing that out. It’s the correct one now. You can click the player
http://www.indueseason.net skottydog

Chris, another killer podcast. The most disturbing thing you mentioned in my opinion was when you said “People feel ‘safer’ using debt than avoiding it.” in reference to businesses using lines of credit with low penalty fees, uh…I mean interest rates.

That is scary. Kind of reminds me of the frog in the slowly boiling water.
- http://ChrisLoCurto.com ChrisLoCurto
  
  @skottydog That’s exactly it! They get to feeling confortable with it. Just like people do with personal debt.
http://www.BaptistEducation.org/ JoshuaWRivers

My wife and I have decided to not go into debt again. We became debt free beside the house a couple years ago. We had moved for jobs and got a new house (without being able to sell the old house, but having a renter). We got stupid and put about $3k on a credit card last fall. Got that paid off a month or two ago. We definitely don’t like debt.

I don’t really have any business experience to speak of personally, except that we paid about $800 for the printing of the first 100 copies of my book and related fees. It crossed my mind to go ahead and grab a credit card to buy more books and get more advertising. But I’m doing it the slow (smarter) way.
- http://ChrisLoCurto.com ChrisLoCurto
  
  @JoshuaWRivers You will be MUCH happier!!!
MattMcWilliams2

I’ve done it both ways now.

Second business I started, we started with $5000 and a dream. No debt. Until…we had a chance to buy another company on the cheap, for about $1.8M. Problem was we only had about half that.

Here we were, having built a $12M/year business from nothing and no debt and we decided to go $1.2M in debt to buy the other company.

Big mistake. It never panned out and the company still has massive debt. We sold that company (the one we bought) for less than half of what we bought it for.

If we had waited until we had the money (which would have taken approximately 8 months, maybe 12) we would not have even bought the company. We would have been sitting on over $2M and who knows what would have happened.

Now I run a 100% debt free business.

The lesson I learned was that the risk was not worth it. The company has never recovered. Only one partner is left and less than 15 employees (from 52). The mood is depressed. Every day is a struggle. Instead of thinking of how to make the next million or how to grow or how to improve the marketing or infrastructure, they are just trying to survive. It’s no fun.

Borrowing money for a business is too risky. Don’t do it.
- http://hardandsimple.blogspot.com/ Skropp
  
  @MattMcWilliams2 What’s the subtitle of that one business book Chris always talks about? something about leadership lessons from the trenches?? Sounds like you’ve been in those trenches! Thanks for sharing your wisdom and experience!! Reminds me of when I was young and I’d put more on my plate Thani could eat and Dad would say “looks like our eyes were bigger than your stomach!” that’s easy to do in ALL aspects of life!
- http://eselfemploymentideas.net/ selfemployedbob
  
  @MattMcWilliams2 Great story Matt!
  
  Why is it that people (including myself) don’t listen and learn from the stories of others? We always seem to think “we are different”! No, we aren’t different! Temptation comes in so many forms.
  
  “The borrower is slave to the lender.” The Book.
- http://ChrisLoCurto.com ChrisLoCurto
  
  @MattMcWilliams2 POW ER FUL!!!!! If you can’t learn from this story right here, you can’t learn.
http://www.brendonwilsoncreative.com/ BrendonWilson

I run our Marketing Firm debt free ….. Never been an issue and we grew exponentially during the recession as we were not leveraged in debt……. #free
- http://epicenterlanguages.com.mx/our-blog Aaron Nelson
  
  @BrendonWilson Well done Brendon! *Applause!* That’s the way to do it. That’s the way to keep it!
http://www.lilykreitinger.com/ lilykreitinger

I just got done listening to the podcast. People were looking at me funny from their cube when I did a one-person standing ovation. Besides the fact that Chris Hogan’s voice alone would have kept me interested even if the topic had been third-degree equations, the content of this episode is amazing!! I need to forward this to a few people I know!

I’ve seen the devastating effect of debt in a small business. I’ve shared this before. My dad lost EVERYTHING to debt when he ran a small business for a couple of years. This topic is highly emotional because I remember what we went through as a family. He was terminated from a 22-year career at a Fortune 500 corporation and invested ALL of his severance money into this business. He never had a plan of action, he started really big and fancy and his rent, inventory, taxes and payroll ate it all. We had to move from a nice three-story house into a tiny two-bedroom apartment in a not-so-nice neighborhood. I had to sign the lease to rent the apartment because I had a full-time job at the time and my dad didn’t. My mom was depressed for months, thinking about all we had lost. My dad’s health deteriorated and he sank into depression too. It ultimately snowballed into events that cost him his life.

So this is my message to small-business owners: “Going into debt has serious consequences for your business, but even more serious consequences for your marriage and your family. It is a life or death matter and we need you alive.”
- http://hardandsimple.blogspot.com/ Skropp
  
  @lilykreitinger Man lily, as always your comments seem to cut through to the heart of the matter! Thanks for sharing the personal experience! It’s so easy to compartmentalize the risk associated with debt–business or personal–when in reality, that sort of risk cannot be stuffed into one little box, it affects all of your life!
  - http://epicenterlanguages.com.mx/our-blog Aaron Nelson
    
    @Skropp @lilykreitinger So true – your business and what happens to it, happens to your life. There is no work/life separation here.
    
    My marriage and my family, and even my own person (mentally, physically and spiritually) suffer when the business suffers, and often soars when the business soars.
    
    I say a loud ‘here here’ to Lily’s comments. Debt kills, and as @ChrisLoCurto often says in the podcasts: debt limits you. I feel like the poster boy for that right now. So as Lily put it, if you’re thinking of using debt, please learn from the hard knocks of others – debt is super bad news.
    - http://hardandsimple.blogspot.com/ Skropp
      
      @Aaron Nelson @lilykreitinger @ChrisLoCurto “Here here!”
- http://www.indueseason.net skottydog
  
  @lilykreitinger Wow. Thanks for sharing that. People think debt and risk are glamorous and exciting. Putting all of your chips on red is only for the movies.
  
  My dad died at age 51 with huge medical debt aside from the mountain of bills he created when he was healthy. That left me with zero inheritance or estate at age 19 living on my own.
  
  Debt has severe, long lasting effects that effects families beyond your own generation. And, conversely, living debt free gives your future generations a fighting chance.
  - http://www.lilykreitinger.com/ lilykreitinger
    
    @skottydog your story and Andy Andrews’ are so alike it’s uncanny… The ripple effect is terrible. Fortunately both you and I learned from their mistakes and took action to change our family tree : )
    - http://www.indueseason.net skottydog
      
      @lilykreitinger Yes, and the number one goal is that our children will never feel the effects of the past mistakes, but will only feel the effects of our success, namely by having eliminated debt.
  - cabinart
    
    @skottydog That’s a rough way to start out and a very hard way to learn a lesson about life.
    - http://www.indueseason.net skottydog
      
      @cabinart Yes, but like Lily, avoiding the “victim” mentality has paid huge dividends thus far!
  - http://ChrisLoCurto.com ChrisLoCurto
    
    @skottydog @lilykreitinger Ugh!!! I can only imagine brother.
- cabinart
  
  @lilykreitinger What a difficult lesson to learn. Thank you for sharing it. I hope it awakens others to the perils of debt. No wonder you are so strong!
John Briese

Its funny how debt and comfort with it, is age related in a multi-generational family company. As a young CEO forced into the big chair by my father’s death, I proceeded to take a company mostly debt free (because my father saw the light!) and plunge into debt to “grow” the business. Now having reached the age when my father learned his lessons, I’ve learned my own. I am pedaling as fast as I can to be debt free and have a 5 year plan to do it. The other goal is to get my son to learn from my experience and not have to re-learn it!
- http://epicenterlanguages.com.mx/our-blog Aaron Nelson
  
  @John Briese I love this John! I’m right with you in the ‘pedaling as fast as I can to get out’ part. And I think it’s so valuable to teach your kids the truth about Debt. I’ll be doing the same with mine – they’re seeing just how negative it is right in front of their eyes. Teachable moments!
  - http://ChrisLoCurto.com ChrisLoCurto
    
    @Aaron Nelson @John Briese Hey John! Think of how much you are going to impact the future generations!! Well done sir.
- CabinetDoork
  
  That’s good lookin out John! One of the main jobs of a parent is to prepare our children to educate themselves. That being said… Go ahead and educate them on the pain of debt before they educate themselves! Keep pumping those pedals!
LanceCashion

My thoughts are…. I’m running my business debt free. But, I’m weird
http://yourlocalstudio.com/ Lori

YES! Our son – a bootstrapping entrepreneur with a 2-year old business http://yourlocalstudio.com – is doing it!

He took to heart the course his fiance & he attended – Financial Peace – and since then has practiced the concepts. They’re married with no debt and he’s running a business with no debt. (My hubby & I are thrilled, can you tell? )
http://www.smirknewmedia.com/ mkokc

It can be done! I’ve been running my biz for two years debt free and we are growing like crazy. Now that I’ve reached the point where all my bills are being paid (and my debt snowball is rocking) any new business is going right back into retained earnings and more growth! It’s crazy but there are so many tools,especially digitally, that are low or no cost. Plus you can get a lot of low cost help or trade on services from other entreleaders – in web design, book keeping, partnerships, etc. sure, I didn’t have huge capital expenses like a backhoe, but being determined to debt free kept me from
Overreaching with the pace in which the biz grew.
- http://ChrisLoCurto.com ChrisLoCurto
  
  @mkokc This is exactly what people need to hear. That it can and is being done.
http://hardandsimple.blogspot.com/ Skropp

Can’t wait to get my day lined out and listen to this podcast Chris! I’m so glad I’ll be able to listen to this info as I’m starting and structuring my business!!
I think it’s totally possible to run a business debt free…you’ll just be looked at as “weird”!
I’ll refrain further comments until I’ve heard the podcast!
- http://ChrisLoCurto.com ChrisLoCurto
  
  @Skropp hahaha…let me know what you think Mark.
  - http://hardandsimple.blogspot.com/ Skropp
    
    @ChrisLoCurto I hope you know if you’re promoting from commented to “podcast critic” I demand my pay be doubled from its current rate! Haha
  - http://hardandsimple.blogspot.com/ Skropp
    
    @ChrisLoCurto I’ll have you know if you’re promoting me from “commenter” to “podcast critic” I demand my pay be doubled from what ou currently pay me…my agent will be in touch! Haha
    - http://www.lilykreitinger.com/ lilykreitinger
      
      @Skropp @ChrisLoCurto I’m his agent. He needs twice what he’s making now.
    - http://hardandsimple.blogspot.com/ Skropp
      
      @lilykreitinger @ChrisLoCurto Ha! Oh, and tell him a 30% increase in my gum ball stipend too! Hahahaha
    - http://ChrisLoCurto.com ChrisLoCurto
      
      @Skropp @lilykreitinger @ChrisLoCurto I think I need my advertising fee for this whole thing.
    - http://hardandsimple.blogspot.com/ Skropp
      
      @ChrisLoCurto @lilykreitinger Haha NOW the hidden fees come out…what are you? Bank of America?? Haha
  - http://hardandsimple.blogspot.com/ Skropp
    
    @ChrisLoCurto Ok Chris, here’s what I think…WOW! What a great podcast. Not only fantastic principles but some awesome practical advice from Chris-cubed (locurto, hogan, mefford)! My biggest takeaway was just that it’s possible! I heard or time that all a winner needs to know is that something can be done…well now I KNOW it can be done!! Thank you sir for your time and wisdom!
    - cabinart
      
      @Skropp @ChrisLoCurto ”Chris cubed”?? That’s really funny!
    - http://hardandsimple.blogspot.com/ Skropp
      
      @cabinart @ChrisLoCurto Haha. It just kinda came to me and struck me funny…
    - http://ChrisLoCurto.com ChrisLoCurto
      
      @Skropp @cabinart @ChrisLoCurto HAHAHA…I didn’t think about that.
http://epicenterlanguages.com.mx/our-blog Aaron Nelson

Can’t wait to get into this. I know you can run a business debt free if you’re willing to be disciplined and patient.

And now I must be disciplined and patient as we work to break free from the debt mistakes we have made. If I could do it over again, knowing what I know now…I sure would opt for being patient and disciplined without the weight of debt sitting on top of us.
- http://hardandsimple.blogspot.com/ Skropp
  
  @Aaron Nelson Haha. Experience is a great–and hard teacher huh? Think of the character you’ve built! Haha. That’s usually not real consoling, but thought I’d offer!
  At least you’ve realized it, how many businesses and individuals never do??
- http://ChrisLoCurto.com ChrisLoCurto
  
  @Aaron Nelson The great thing is you can do it! It just takes a little time. You didn’t get into debt overnight, you won’t get out overnight. Well….unless you rob a bank or something. Then you have much BIGGER problems.
  - http://hardandsimple.blogspot.com/ Skropp
    
    @ChrisLoCurto @Aaron Nelson I have a friend Aaron who’s a president of a bank and he says you’re better off robbing a grocery store, there’s actually more cash on hand…just in case you entertain that avenue, haha
    - http://eselfemploymentideas.net/ selfemployedbob
      
      @Skropp @ChrisLoCurto @Aaron You can do it Aaron! You don’t have to rob a bank either. We just finished two weeks ago by selling our house. Took us like 7 years (snail intense), but it’s done, none the less!
      
      Just don’t give up buddy!
    - cabinart
      
      @selfemployedbob ”Snail intense”? sounds more like “snail determined”! congratulations!
    - http://eselfemploymentideas.net/ selfemployedbob
      
      @cabinart Thanks! We hit a few speed bumps along the way, but we never stopped dreaming! ;)
  - http://epicenterlanguages.com.mx/our-blog Aaron Nelson
    
    @ChrisLoCurto thanks Chris! I really appreciate your kind words today.
    - http://ChrisLoCurto.com ChrisLoCurto
      
      @Aaron Nelson Absolutely!!
- http://www.lilykreitinger.com/ lilykreitinger
  
  @Aaron Nelson There’s a whole bunch of people here cheering you on Aaron! You can do it!!!
  - http://hardandsimple.blogspot.com/ Skropp
    
    @lilykreitinger @Aaron Nelson Ya! Word! (is that reference a little too Vanilla Ice-ish? Haha)
    - http://epicenterlanguages.com.mx/our-blog Aaron Nelson
      
      @Skropp @lilykreitinger @ChrisLoCurto @selfemployedbob thanks so much you guys! Beating debt is an emotional battle as well as a financial one. But I know you know that. These last few days the war rages in both of those spots for me – but mostly in the ‘keeping the chin up’ part. It’s been frustrating! But, as you all have said – we will get through this, one day at a time. Thanks for the push!
http://www.jmlalonde.com/ Joseph Lalonde

I think it’s the most beneficial way to do it. You have one less thing to worry about.
- http://hardandsimple.blogspot.com/ Skropp
  
  @Joseph Lalonde Great point Joseph. It’s worth it if only from a stress standpoint im sure!
  On a side note, did I hear a question from you on the last Michael Hyatt podcast??
  - http://www.jmlalonde.com/ Joseph Lalonde
    
    @Skropp Exactly. On top of paying your employees, utilities, etc…
    
    And yes, that would be me. Was great to hear him answer a question I asked.
    - http://hardandsimple.blogspot.com/ Skropp
      
      @Joseph Lalonde Ha! I knew it!! You’re famous!!! It was great to hear you and your question!
  - cabinart
    
    @Skropp @Joseph Yep, I noticed too! Whoa, the air is getting rarified with all the Big Names here on CLo’s blog!
    - http://hardandsimple.blogspot.com/ Skropp
      
      @cabinart @Joseph For sure! First Andy Traub comments a few weeks back and now Joe!!
- http://ChrisLoCurto.com ChrisLoCurto
  
  @Joseph Lalonde hahaha…and that’s one BIG thing.
  - http://www.jmlalonde.com/ Joseph Lalonde
    
    @ChrisLoCurto Yes it is. I can only imagine the stress of making sure that note is paid. Unneeded stress and frustration.

19 Jun