Debt – The Good, The Bad, The Ugly

As a business owner, or aspiring entrepreneur, you will be faced with making many choices that can either move your business forward, or hold it back.

Although most of us would agree with the concept that you have to spend money to make it, when it’s your signature on the check, and your bank account that’s being depleted, it can be really difficult to put that adage into play.

And no matter if you work at home, or rent office or storefront space, make no mistake: there are start up costs and ongoing expenses involved in launching and running a business.

The difficulty I see most corporate fugitives have is deciding when to spend, and what to spend on. Unfortunately (and sadly) I have seen many people overspend on items that are not poor choices in and of themselves, but are made at the wrong time, and end up being almost a complete waste of money.

Especially when your business is in its early days, you will not yet have a predictable cash flow pattern and most likely you will turn to personal credit to fund your business expenses. Even though this isn’t the textbook way to do it, I can tell you that most of us have done this, myself included.

So before you whip out your credit card for the next “must have” item, take a look at these guidelines to help you make a good decision.

Good Debt

• Equipment and tools you need to deliver your services
• Professional advice that impacts the legal and financial operation of your business (such as a financial advisor, accountant or lawyer)
• Professional advice that is pertinent to where you are at in your business right now (such as a business advisor or marketing strategist)
• Training programs or products that address an area of weakness that is keeping you from earning money (for example, how to set up your business model, pricing, marketing, sales)
• Participating in coaching or mentoring programs in which the content you are learning can be applied within a year and will return your investment multiple times over
• Assistance to help you generate revenue faster by freeing up your time to spend on your clients instead of administration or activities to run your business (for example, a virtual assistant, a bookkeeper)
• Memberships and events that put you in contact with people who will help you move your business forward (either by increasing your skills, connecting with your target market, or finding strategic alliances and other business owners who you can work with for mutual benefit)

Bad Debt

Any expense or investment that does not have an immediate or short term return can be considered a bad debt in my books. For example:

• Training or products that are valuable but which you can’t implement in your business within the next year
• Participating in programs that are so far beyond where you are in your business that you just don’t fit (for example, joining a program that focuses on a specific area, or is designed for business owners at a higher revenue level – there is a fine line between stretching yourself and aiming higher, and totally frustrating yourself because you don’t have the resources to keep up)
• Overspending on randomly selected marketing activities without having a business and marketing strategy in place (it’s better to do less activities consistently and strategically, than to scatter your marketing)
• Spending indiscriminately on getting help with different aspects of your business, without having a cohesive plan in place to manage this (for example, hiring different people to do different things for you, without ensuring they all understand the big picture and how what they do for you relates to the others on the team)
• Purchasing high ticket products or services that sound like a good idea someday but don’t have an immediate fit in your business model (for example, investing in a program that teaches you how to run a high level group program, when you have no plans within the next year to launch this service; or investing in capital expenses like fancy equipment that is more than what you need)
• Buying anything from someone who has questionable expertise and no proven track record ( the internet is full of the “one chapter ahead” crowd)

And ugly debt? Ugly debt is when you have reached the point that you have exhausted your resources, you don’t see a return in your revenues, and you’re contemplating folding up your tent and going back to the job world. Don’t let this happen to you! With a solid plan in place, and the ability to make informed decisions, you will be able to design the business of your dreams, without breaking your spirit or your bank.

Want to use this article? You can as long as you include this footer: Sherri Garrity is the Chief Corporate Fugitive and creator of the Five Keys Success SystemTM for ex-corporate employees and aspiring entrepreneurs who want to break free from the confines of their corporate experience and live outside of the ordinary. The Corporate Fugitive system demystifies the business of setting up, managing, marketing and growing a successful and extraordinary business. Visit www.corporatefugitive.com for information and step-by-step resources to take you from overwhelmed employee to extraordinary entrepreneur.