As entrepreneurs, we tend to do anything for our businesses to succeed. We take risks, including taking on debt with the intent of growing our businesses to the point that they are profitable. For many of us, it's necessary.
It's also easy for us to get ahead of themselves with a vision of massive wealth and success. This dream makes debt seem like an obvious necessity--the old adage that you have to spend money to make money. But the reality of debt is that it has to be paid down or it piles up and can ruin every dream you have ever had.
Here are five reasons you should pay attention to debt:
1. You Need Credit
A reality of life and business is that you need credit. I have seen people trying to start businesses with credit so bad that they cannot get approved for a cell phone.
They rarely succeed.
Access to credit is a basic to run a business and survive in life, especially when you are doing things on your own without partners or other financial backing. Having poor credit reflects on your money management skills, and good money management is what partners, investors, clients and suppliers need.
2. You Probably Have No Retirement Package
Some entrepreneurs hit it big. Others earn enough to pay their bills and grow the business.
Struggling year after year to keep the business going is the sacrifice we chose to make, rather than the security of a nine-to-five job and a consistent paycheck. None of us are salaried staff members with retirement packages--not at first, anyway. That means we have to plan to establish and contribute to self funded retirement.
Working hard for many years without saving for retirement will be challenging enough. If you also have significant accumulated debt, your options to retire, to remain an independent entrepreneur or to maintain a lifestyle will be affected.
Your "golden years" will look pretty tarnished.
3. You Don't Need the Stress
Any stress can disrupt your life. Financial stress is one of the biggest killers, figuratively and literally.
Concerns over debt can distort your decision making, govern your day-to-day mindset and take away your ability to be positive and embrace joy. They can even manifest in illness and other physical deterioration or symptoms.
Having a company to run--and people depending on you--brings stresses in and of itself. You can handle those.
What you don't need is to get burnt out with debt-specific stress. You need to be at the top of your game in order to succeed.
4. You Risk Losing Your Source of Income
Debt comes in all sorts of forms, from credit cards to lines of credit, from bank loans to borrowing from family and friends. So when you take on debt, you need to be aware of the actual terms and conditions as well as the consequences of falling behind in payments.
The consequences can include:
- Daily harassment from credit or loan companies.
- Having your account placed with a collection agency.
- Being subject to a court judgment against you.
- Anger, frustration, loss of faith or loss of trust in you from family or friends.
Those consequences are bad enough. Worse still, you open up a possibility of disruption to your cash flow.
The equipment or assets you use to operate your business could also be seized. For example, if you have a car that's necessary to the operation of your business, and that car has a loan attached to it, you could lose the car to seizure by a lender for nonpayment.
In any of these scenarios, the damage to your credit will be significant.
5. You'll Always Need More Money
You'll always needs more money. Sometimes, it'll be for new ventures. Other times, it'll be for expanding what you already have. It can allow you to think long-term, and not just about 'quick cash'.
You won't be able to convince anyone to give you money if you don't have a track record of paying debts on-time, early, or at all. You're going to need credit--whether through a bank or a private capital source--or a bulletproof reputation for paying back debt.
That should be incentive enough to pay debt down quickly and always return what you've borrowed. It's the moral thing to do, and your continued livelihood will depend on it.