The more debt you have the more risk you have. Debt costs money in interest, and that raises your breakeven each month.
Of course, debt can be a necessary tool, or even a voluntary one. If you don’t have the money to invest in (real estate, capital equipment, vehicles you need), then you need to finance them to move forward. But pay attention.
How much are you paying in interest each month?
Are the assets you financed good investments that are making you money or enabling you to make money?
If business gets REALLY slow, can you still afford the payments?
I have always tried to avoid debt. Of course, you need a successful business that makes money to pay cash for new buildings or vehicles. If you always need financing, you might think about how to run the business better so you can make money and don’t have to borrow.
Innovate, add value to your customers you can charge for, become more efficient, and get better at marketing and better at selling.
A leader needs to understand money – a debt is a part of that.
Great post! This applies to more than just business. Wouldn’t it be foolish for a business to use debt to buy capital but treat it as income? Especially when the bank itself is steadily becoming insolvent.