Company Core Value: Limit Debt

I personally have a strong aversion to debt.  It makes me biased away from debt in a strong way.

However, I recognize that certain types of businesses and situations have to use debt as a tool for their business.  In these cases, rather than advocate for no debt, I'd say the key term is to limit debt.

By limiting debt, you can withstand mistakes without suffering devastating consequences for your business.  I have witnessed business bankruptcies through the years, and almost all of them were caused by some mistake or unexpected downturn. The causes varied a lot.  But all of the bankrupt businesses had one other thing in common.  The company's debt loads were too high, so they could not recover.  

Your goal should be to keep a strong supply of savings in the bank.  Not just for a rainy day, but to take advantage of opportunities when they come. In my business life, opportunities have come, and most of the time, these opportunities weren't even on our radar.  We had no idea when they were going to happen.

With savings in the bank, we were ready to act.  In many cases, we were able to add equipment that suddenly became available.  Other times, we bought companies.  

Were all of these acquisitions good investments? Many were, but not all. However, by avoiding debt, we endured the mistakes without a great deal of agony.

Now somebody might say “Joe, this is easy for you to say because your company has lots of money to make purchases.” True, but here is my reply: We have lots of money for purchases because we used this philosophy when we didn’t have lots of money. I remember in the early days struggling to save enough money so we could buy a fax machine. (in the 80’s fax machines were expensive) We could have leased it, but it wasn’t our philosophy. So we saved and paid cash for a $1000 fax machine. We had to take small steps first. Then we could take larger steps. Small steps lead to larger steps, but you have to take smaller steps first. 

This philosophy about avoiding debt works in personal finance as well. We hear stories and see examples on television of people who had great success by borrowing and investing the borrowed money. 

Sure, there are some people who have success like that, but there are just as many (probably more) who borrow to invest and lose everything. These folks generally don’t get much publicity.  They're not on television.

People who embrace a no-debt goal build wealth and security slowly, quietly, and most of them who do it succeed. It may not be the ritzy, glamorous success that gets publicity, but it is success.  And it is the kind of success that allows you to sleep really well at night.

One final thought, and it is a big one:  I have advised business owners who are consumed by making debt payments.  Worrying about making a payment robs you of time and mindshare to do the things that really make you money.  Sales.  Service.  Production.  Employees.  All of these things need your attention, and when debt payments crowd out mindshare, the cost of debt is much more than the money owed.

I challenge you to make limiting your debt a core value.  It will give you financial strength and flexibility, and psychological peace of mind.