How to Manage Debt

Back in Black: How to Stay Out of Business Debt

    If you are starting your own business or thinking of starting one, you have probably heard someone throw out the old axiom that “it takes money to make money.” This is exactly the kind of thinking that gets rookie entrepreneurs and veterans alike into trouble with business debt. Fortunately for us, the rise of the internet has created the possibility for all kinds of people from all corners of the world to launch innovative and debt-free businesses with just as many methods of making money.

    In a recent Gallup poll, 49% of business owners say it is extremely difficult to reduce their debt, and 36% are uncomfortable with the debt they are carrying. Conventional thinking would have us believe that you can’t start a business without a loan. There are many business models, however, that allow you to avoid debt altogether. Today, it is easier than it has ever been to start one of these businesses.

    I have personally managed to stay out of debt and make millions in my businesses by thinking outside of the box and maintaining a no-debt policy. I am usually not the smartest person in the room, so I am sure that if I can do it, you can too. Businesses that operate without debt are able to thrive and prosper.

    Here are some of the ways that you can avoid debt altogether.

    Be Creative

    Of course, if you go with conventional thinking and take out a loan, you will have the stress of business debt. The mistake is in believing that this is the only way. I think many people would rather have a chunk of change handed to them from a bank or investor at a high interest rate and be a slave to the debt for multiple years rather than putting in the work now to create their own future capital and sweat equity.

    One of the most exciting and creative methods of raising funds for many startups over the past few years has been crowdfunding. Websites like Kickstarter and Indiegogo are just a couple that come to mind who are leading this movement. Not only are you raising funds with a crowdfunding campaign, you are also engaging your customer audience. These are the people who will be supporting your business through thick and thin, so forming that relationship with them is extremely valuable.

    Keep It Virtual

    When I started my first business over seven years ago, I was sleeping on my sister’s couch and eating ramen noodles. A brick-and-mortar location is wonderful, but if you are starting a business that you can run from the kitchen table, you will have a huge head start on avoiding debt. Leasing fees can break a new business. If you are offering a quality product, then your customers won’t care where your office is located.

    If working from home doesn’t work for your business, you can find co-working spaces that are much cheaper than renting alone. This is exactly what I did when my business started growing.

    Be a Mentor, Hire an Intern

    As you grow and begin to wish you could clone yourself, a great way to infuse your business with energy and to get help before you are able to hire is to take on an intern. This can be a win-win situation, because almost every college student needs an internship to graduate.

    Additionally what you have to provide them is equally as valuable as the work they will put in for you. Interns can do a variety of tasks, including graphic design, making phone calls, data entry, etc. This requires you to be a manager and a teacher to your intern as you go, but the possibilities are endless.

    Stay Frugal

    The trap that many people fall into is spending more as they earn more. When your business takes off, you will be tempted to spend money on things you have long been desiring, or maybe even on things you believe you need immediately to expand your operation.

    When your business is taking off, the key to success at this point is to hold off on luxuries and continue to live at the lifestyle you have been living. Many people see the money coming in and spend it out just as quickly, but the secret to accumulating wealth at this stage is to live the same lifestyle while making more money. Be responsible about your rate of growth. Save for a rainy day and you won’t end up bankrupt having lost everything you worked for.

    Honestly, all it takes is some common sense to stay out of business debt, but many people get ahead of themselves wanting to have it all right away. Keep your eyes on the prize: a long-lasting, debt-free and prosperous business.

    If you currently have business debt and are looking to pay it off, read our article on how to use the stack method to get out of debt.

    Chapter 3.
    5 Ways to Pay Down Small Business Debt4 min
    Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.