Life lessons in business: debt

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Four years ago, I wrote a post here on this blog that I still think about from time to time. It is a post about debt in business and is my personal story about business debt.

Read it here: https://greghowlett.com/blog/thoughts/083012.aspx

Since I wrote that post, the company (Vitabase) that I was talking about sold. It was a story that ended well but I can tell you that it would not have ended well if the debt situation had not been fixed.

Your approach to debt will be one of the biggest factors that influences your life in business. It is ultra important to get right.

Let’s talk about the positive side of debt for a second. I know some will disagree with me but the Bible does not condemn debt. There are no ethical considerations that would preclude you from taking on debt as long as you have the capacity and will to pay your debts.

A common business synonym for debt is “leverage.” There is a good reason for that. A lever is a tool that allows you to do more than you should be able to do and that is what debt does too. Debt allows you to do things in business that you would not normally be able to do with just your own resources. For example, if you only have $10,000 to invest but can borrow $100,000, you can do things that are possibly ten times as big. Theoretically, you make ten times as much money too (or even more of course).

The poster child of leverage of course is Donald Trump. Trump was fortunate to have a wealthy dad who lent him millions of dollars (depending on whom you ask, you will get a different answer for how many millions). Over decades, with the help of borrowing hundreds of millions more, he has managed to grow his wealth into billions of dollars (depending on whom you ask, you will get a different answer for how many billions).

Trump wants you to think he started with very few millions and ended with a lot of billions. Because he exaggerates everything else to build his personal brand, you have to take that with a gigantic grain of salt. But even if you take Trump’s own inflated numbers, here is an inconvenient truth he does not want you to focus on: if he had just taken that initial loan and stuck it in an index fund in the stock market, he would be further ahead today. Furthermore, he would have done it without cheating his creditors (and the taxpayers) by declaring bankruptcy multiple times.

Sometimes, the turtle does win the race. Trump’s way is one way to do it but it is hardly the only way to do it and honestly, I don’t recommend it. There are plenty of other huge businesses that have not needed to operate on much leverage if any (Just with its cash on hand, Apple could buy Trump 30 or 40 times). I respect a humble business person that builds a business out of the ground slowly with his own money far more than I respect a man like Trump that has simply used everyone else’s money without always paying it back.

Even though debt is OK in theory, avoid it as much as possible. Let me tell you something very personal: the greatest stress in my marriage has been over the financial pressure that comes from debt. Debt is the kind of thing that ages you faster than you want to age. I am not talking about comfortable debt–I am talking about the aggressive debt that you bet your future on because you know that you can only pay it back if you are successful.

Even if debt will help you grow faster, it is just possibly not worth it. Be careful. It is simply not worth growing faster if in the process you destroy things like family and relationships that are far more important than money.

There are numerous websites and resources that can help you learn how to use business debt wisely so I won’t give any specifics here. My best advice is to make sure your level of debt is not keeping you up at night. If it is, you should probably adjust some things.