Managing Debt
The folks over at Bankaholic have come up with common causes of business debt. I left out the easily avoided part, because I am sure many a struggling entrepreneur has ventured down these slippery slopes. But, it provides a good reminder of the pitfalls faced by small businesses everyday.
"Start-ups go out of business all the time, often before they even have a chance to even really star up at all. The main culprit in the savage slaughter of these young establishments is the same perpetrator behind the bulk of our fiscal difficulties: Debt."
8 Easily Avoidable Causes of Business Debt
Labels: bank debt, small business pitfalls, start up
posted by Mike Doherty at
10:57 AM
1 Comments:
Debt, like profit, is the end result of management actions taken (or not taken). Business owners take on debt because they assume it will enable them to get their business to the point of making a profit; inexperienced ones sometimes forget that the only way to build business value - meaning equity - is by making a profit, and they seek out debt because their measure of survival is cash in the bank, not net worth. So they build debt to raise cash when they should be building profits to raise cash. Those who attract investors often do so for similar reasons, and not because the investors' money will enable them to build a dramatically stronger company.
The moral of the story: build profits, not debt. Take on debt if it is clearly the way to build profits large enough to leave you in a better place AFTER you pay off the debt.
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