Reasons Why Small Business Owners Should Plan for Debt

Small business owners who plan for debt are taking a step toward successSmall business owners who want to add value to their operations should consider leveraging debt, says the CEO of Manta.com John Swanciger. Debt is a reality in business, but often it’s seen as a liability that strangles cash flow and profitability. Don’t think of debt like a predator that threatens your dream of success. Understanding the reasons to take it on can shed new light on its value.

Running a small business isn’t an exact science since changes occur that are beyond the owner’s control like hiccups in the global economy, weather, war, or policies in one’s home state. Prepping for every unforeseen event isn’t possible and temporary dips in sales are to be expected.

Taking on debt shouldn’t be a reaction to the business problems being faced, but when an entrepreneur is laying out business plans and financial cycles it could be smart to consider financing options. If a company is a success after two years, three years, or five years new equipment loans or debt for other reasons may be necessary to sustain growth.

“Debt should add value to your business,” says Swanciger. “Successful businesses add debt in order to make a new product or move to a new location to expand operations. Think of your house and your mortgage that’s used to finance an appreciating asset. Your business is similar.”

He says a lot of small business owners approach debt like they do in their personal life. Cash flow gets tight and credit cards get maxed out to make purchases on new equipment or inventory. If the business has inherent problems, then borrowing won’t solve those.

“Yet, historically, well-managed companies know how and when to take on debt.” Swanciger advises entrepreneurs to friends with their banker or other potential lenders and stay updated with trends in the marketplace.

Taking on debt is part of an overall business strategy that encompasses pricing, product, and promotion. New firms like contractors, plumbers, health offices, and attorneys may cut prices to get a foothold with new customers. Cutting prices to match competitors’ fees and prices could be a mistake and hurt cash flow as much as bad debt.

Finance is one of the topics that Manta.com covers in its online Academy for small business owners. Got debt? Forward thinking and the right kind of debt could give the competitive edge needed to win new customers and build an expanding enterprise.