In my last post, I spoke about the owner of a business who told me the hardest part on the road to success was that very first decision to expand.
Even after I wrote that post, I thought more about it, and I realized what made the decision so hard was the acceptance of using credit to expand. Because almost any type of expansion in a business will involve using credit, from financing equipment to buying a building to taking on more payroll. To do any of this, you have to embrace credit and debt.
This can be difficult for many business owners. Because from a very young age, we are generally taught that credit and debt are things to avoid. My grandfather was one of those people who never used a “charge card” (that’s what he called it). Besides a mortgage, he never had any debt. His advice always was “if you can’t afford to buy it for cash, then you don’t buy it”. He even bought his cars cash.
But that doesn’t work in business. There is no way around it – you have to embrace using credit and taking on debt. Business success all hinges on making a profit, not how much cash you can sock away. A business that can pay all of its expenses and have money left over (profit) is successful. Included in those expenses are salaries and benefits, rent/mortgage, normal overhead, taxes, and yes, monthly payments on equipment.
There is almost no successful company out there that doesn’t use credit. In fact, leveraging credit is seen as a sure way to grow. Many times, adding new equipment instantly increases production, which increases revenues. Financing equipment allows the cost to be spread out over time. In many cases, the revenue increase exceeds the monthly payment – that’s a no-brainer profit. Add in something like Section 179, and you have a real winner.
Bottom line, if your business is “working” in a cost/expense sense, an intelligent expansion of what is working is a no-brainer. Whether it’s financing equipment, a line of credit, adding more people, or all of the above, embracing credit is a huge part of your company’s success.