How to Leverage Debt to Grow Your Business

Your business is your passion, your livelihood, and your legacy. You want to see it succeed and thrive, but sometimes that can be a difficult task. It requires a lot of resources to make your business grow - time, effort, and of course, money. And as a business owner, you know all too well how hard it can be to balance the money coming into your business with the many expenses your business needs to keep the lights on.

That’s where debt comes in. 

For many entrepreneurs, the idea of taking on debt can feel counterproductive and even taboo. After all, debt means owing someone money rather than saving or pocketing the money yourself. Or, you may have even been taught that taking on debt means you’re wrong or bad or can’t succeed on your own.  But this is a consumer or employee mindset, not the mindset of an entrepreneur who will leverage all available resources for growth and creation, not consumption.

Leveraging debt can be a powerful tool for growing your small business faster than you’d be able to just by saving your funds. In fact, saving your way to your goals is not only one of the slowest ways to get there but can often be a death sentence for a business that is on the cusp of major growth.

If you aren’t sure how to finance your business’s growth or feel resistant to the idea of taking out debt to do so, I’m going to share with you why you don’t need to be afraid of going into debt for your business and how to do so in a responsible way that sets you and your business up for success.

Recognize Where Your Business Needs Support

In order to plan for your business’s growth, you first need to understand where your business’s needs are. This might seem rudimentary, but this is the most important step in order to make smart borrowing decisions later. 

Take an honest look at your business to assess where it needs more support or improvement. The easiest way to do this may be to consider what parts of your business you find to be the most frustrating and what tasks are the most time-consuming. For example:

• Do you want more customers, but feel like you can barely keep up with your workload as it is?
• Do you spend hours a month fighting with your printer? 
• Are you manually tracking your expenses on your own or unsure if you are paying too much on your taxes because you don’t really know how to work with your bookkeeper and CPA?
• Are you clear you have a great service, but now need to invest in getting more clients in the door?
• Does your revenue ebb and flow rather than stay consistent?

By getting clear on where you are now, and identifying your next highest leverage investment, you can clarify exactly where you would invest if you had more money available to you and determine how quickly your investment will pay off. For example, if you know you have a valuable service and you just need more clients, you can use credit to invest in getting more clients, and pay it off with future engagements. That’s a wise use of credit! 

How Much Is Your Time Worth? - Doing the Math

Once you’ve identified areas of your business that are weak or consuming too much time, you need to look at the cost-savings that could be gained by eliminating or improving these problem areas. 

Remember, money is infinite when you know how to earn it, and as a business owner you surely do when you stay focused on earning, and hire out as much of everything else as you can, leveraging credit to support you. It’s your time, energy, and attention that are non-renewable resources.

This is where most borrowers meet their own inner resistance. To many, it seems counterintuitive to spend money on something that we can do ourselves or do for less. But there is nothing more valuable to your business than improving inefficiencies and buying back your time. By doing so, you have more time to invest back into your business.

Think of your business as a bow and arrow, you pull back on the arrow (go into debt) in order to launch the arrow (your business) forward.

For example, you may have a printer that prints slowly, jams constantly, and requires hours of your attention every week. Let’s imagine it cost you $100 to purchase this printer but would cost you $70 a month to rent a more reliable commercial printer. On the surface, it’s obvious that you save money by buying a lesser printer one time than renting a commercial printer every month.

Or does it?

Let’s say it takes you 60 minutes a day to print using your own printer, but would only take 20 minutes a day to print using a commercial printer. 

By using a commercial printer, you would save yourself 40 minutes a day, which is equal to 3 hours of saved time a week. If you save 3 hours a week, you’ll have gained back 156 hours of time over the whole year - that’s 19.5 days of time saved.

If you make $200 a day in your business, you could potentially generate an additional $3,900 over the year just because you spend $70 a month ($840 per year) on a better printer. That leaves you with more than $3,000 in additional revenue.

Aside from putting that time back in as working hours, imagine what else you could accomplish in 19 days:

• Attended a continuing education conference
• Learn a new skill for your business
• Interview candidates for an assistant to free up even more of your time
• Take a family vacation or enjoy a hobby

When you think of your investments in terms of how much time using money can free up, you’ll see how valuable your time really is and how many doors you can open by leveraging credit to get you the money you need to “buy back your time” as Dan Martell illustrates in his book, Buy Back Your Time: Get Unstuck, Reclaim Your Freedom, and Build Your Empire. (A read I highly recommend!)

Taking on debt can help you to invest in new equipment, expand your services, or even hire additional employees that you need in order to increase your capacity and thereby support you in earning more revenue.

Know Your Borrowing Options

Once you’re clear on where you can leverage credit to free up time in your business or to help you hit your goals more quickly, you need to understand the different types of financing available to you. There are many options out there, from business loans to lines of credit to credit cards. Each has its own advantages and disadvantages, and it's important to choose the one that best fits your business's needs. 

Before applying for financing, explore your options and take the time to understand the terms of each type of credit line or loan.

It's also crucial to have a good credit score and a strong financial history. Lenders will be looking at these factors when considering your loan application, and having a solid foundation can greatly increase your chances of being approved.

In all cases, be sure to open any loans or lines of credit using your business’s Tax Identification Number, and whenever possible ensure that your business credit will not report on your personal credit score. If you aren’t sure how best to do this, contact us so we can help you consider all the options. 

Create a Plan with Help From a Trusted Business Advisor

When considering taking on debt to grow your business, it's important to have a clear plan in place. Creating a business plan for exactly what you'll be using the funds for, how you'll be paying them back, and how much revenue the investment can generate will illuminate what borrowing options make the most sense for your business.

But even with the best intentions and planning, taking on debt can be a risky move. That's why it's important to work with a trusted advisor who can guide you through the process and help you make informed decisions. 

When you work with me, I’ll help you evaluate your options, identify potential risks, and create a cash flow forecast so you can see how your financial investments will affect you in the short term and how they’ll support your business for long-term growth. 

To get started, contact us today to learn more about how I can guide you to make smart decisions for your business and empower you to invest in your business and yourself without fear.