My father always used to preach that those who understand money earn
interest, those who don’t understand pay interest. I think that’s
pretty good advice, especially in today’s world. Though I’ve lived that
philosophy in both my personal and professional lives, I’ve often been
challenged by entrepreneurs about the concept’s validity for small
businesses. In fact, I remember one very successful entrepreneur who
chided me saying, “you don’t ever work on your own money. You always
work on someone else’s. That’s the only way you succeed.”

Jeff Cornwall, over at The Entrepreneurial Mind Blog has a great post on debt for small businesses entitled, “Reducing Your Need For Debt.”
He explains the need for restraint in taking on debt, and the risks of
doing so in an unwise manner. Take a minute and read this one. It’s
worth your time.

In addition to the excellent points he made, I’d add this: debt
never sleeps. It never takes a vacation. It never has a sick day. Debt
is relentless and unforgiving. It is a harsh task master. While it’s
true you can form an uneasy alliance with debt, it can quickly turn on
you. It can be a friend (of sorts,) but it much more likely to be your
enemy.

I am reminded of a business I worked with years ago. They had funded
almost their entire startup with borrowed money. They were underfunded
from the beginning, and struggled to service their debt from day one.
By the time I got there they were drowning in interest payments (they
weren’t even in a position to think about principal payments.) The
owners wanted to know how to get out from under the huge debt burden.

“Sell some of your interest in the company to other investors and
pay off the bank,” I told them. “But in order to get enough to come
close to satisfying the bank, we’d have to sell the majority of our
ownership,” they countered. And therein lies the problem.

Debt is easy to incur and hard to discharge. Used judiciously, it
can get you through a tight spot. Used to excess it can rob you of
everything. Your business will be much more healthy if you finance your
growth out of your own cash flow. You may have to grow slower, but what
you have will be yours.

We tend to think of things we “own” as ours — like our homes, for
example. But the truth is that until you make that last payment, the
bank owns the home. No matter that you’ve paid the payments on time for
twenty nine and a half years. If you stop paying before that final
payment is made, the bank can (and will) come in and exercise their
ownership by taking possession of your home.

It’s the same in business. The only way you protect yourself if to
be wise about the debts you incur and be sure the reasons for doing so
are valid and justifiable. Just as interest expense never sleeps,
interest income also never sleeps. You can be making money when you’re
at the beach, on the golf course, or in your bed sleeping. Your
personal relationship with interest is dependent upon whether or not
you understand money. Because after all, those who understand money. . .