Operating A Debt-Free Business

Making the transition from a startup business to an established one is the dream of every entrepreneur. Most businesses fail within the first year for a variety of reasons; ranging from the inability to capture market share, over-expansion, operational inefficiencies, and an inadequate cash cushion, among many other reasons. Several of the shortfalls of starting a business can be avoided by incorporating staying debt free into the business strategy, as debt is the primary killer of business.

Smart Business Growth

As a business owner, the temptation to borrow money to keep up with the expansion of your company is hard to fight. You see competitors riding the boom bubble, borrowing against future profits, and expanding all around you. If you maintain the philosophy that the business will provide the profit needed to expand, you reduce the chances of encountering financial difficulties. Companies like Walgreens, Cisco, Systems, and William Wrigley have included the debt-free concept into their business strategy, and see themselves outpacing competitors through the long term of business ups and downs.

Debt-Free From the Start

The best way to maintain a debt-free business is to start out debt-free. Most businesses are started with less than $5,000, but the more startup cash available, the better. Starting a business with your own cash also helps affirm a level of commitment to starting the business. Startup costs are unavoidable, but reducing your startup costs can be easy by following a few simple rules – Pay cash, rent until you can buy it, buy used, and don’t do everything yourself.

Pay cash– This supports the concept that the business will provide the profits for expansion. When only use on hand cash, you limit yourself from over-expanding..

Rent until you can buy – Renting is never a good long-term plan, but renting while saving to buy to prevent borrowing money, is.

Buy used – Just like with cars, as soon as it leaves the lot, a substantial amount of money is lost. When buying new, you also pay for the new-car smell, not necessarily just the product itself.

Subcontract work – Don’t feel that you or your company needs to handle every little aspect of the business to control costs. It’s often a better option to outsource work, which can be done better and cheaper than you could on your own.

Developing A Debt-Free Operation

Even if your business isn’t currently debt-free, achieving this goal can be easy with a little hard work, implementing the above rules. Create a three to five-year plan to reduce and eliminate the company debt and strategically plan for upcoming purchases. Research shows that companies which avoid debt are more profitable in general, largely because of the chunk of the net profit is dedicated to pay the interest of the loan. Borrowing can allow a business to grow at a pace that would not be possible otherwise, but debt also limits financial flexibility. Operating a no-debt perspective, growing a business slowly can be the right way to grow and the best option to avoid several traditional business failures.

Justin writes business tips and how-to found and market a business on behalf of Kwikkerb. He also provides information on the Kwikkerb business opportunity.

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