Let's Unscramble This Business Mess

Do These Guys Look Like Good Business Partners?  Neither Does Debt.

Several years ago I was struggling with my business.  I could not generate enough money to cover my expenses.  The amount of debt my business was managing was tolerable at that time.  Nearly every business model manages a certain level of debt.  Debt becomes much like a routine line item on your financials.  It seems to always show up on the income statement every month and the corresponding balance sheets.  Debt has become a routine fixture to the business world.

My business several years ago was managing its routine debts.  Some of those debts were short term, 'on account' product purchases from my suppliers while others were longer term debts coming from loans secured at my local bank.  At that time, my business was managing a debt package of about 15% of its gross sales.  To some of you who do not know what that means, this amount of debt is too large to carry.  Typically, if fifteen percent of your business income is dedicated to servicing your monthly debt payments you are carrying too much economic burden in your business model.  There are a lot of exceptions to this policy of thought, but make no mistake about when and when not to allow this kind of debt management to get out of hand.

Back when this was happening to my business I was able to manage the payments and keep the debt from climbing any larger.  The mess began to occur when I trusted that process and allowed that debt to become a permanent fixture in my business management process.  I permitted that debt to become a 'line item' of allowable cost.  It was permitted, expected, budgeted and planned.  I was doing what most Americans have learned how to do.  I was living above my business means.

This kind of economic policy will eventually create a terrible financial mess.  Sooner or later it will grow too large to be manageable.  It will become larger than the business revenues can support.  It is also a problem in that this kind of expense is not something you can cut out of the budget without paying it off.  In other words, you cannot trim down debt like you can cut back on energy use.  You cannot trim down debt like you can cut payroll expenses.  If budgets need to be cut, laying one employee off will do the trick immediately.  However, regarding debt, you cannot decide to stop paying it and cut it off.  Debt cannot be trimmed from the budget.  Debt is a permanent fixture in your package of business requirements.  Debt is a sneaky little monster boss.  Be very careful how much power you give it.

Debt also has a tendency to limit where you can cut back on other expenses.  For example, if you are working to expand your business and you have placed some major capital investments into new markets, your business demand for increased marketing money has come alive.  The demand for spending more money to market your expansion successfully has cramped where your cuts can occur when the debt exceeds your ability to keep up with the cost of its servicing.  The cost of reaching new markets is not as serious of a contender in expense attention as is the debt you carry.  Debt limits the decisions you have for cutting where you would prefer to cut.  By the pure nature of its demand for being serviced first, debt reduces the funds you have for feeding the other important business costs you need to be servicing.  Debt limits what you can spend, when you need to spend it and where you want to select what to spend.  Debt is a terrible boss.  It is a clear boss with a terrible business partner attitude.

When you manage debt, especially by plan, you admit to taking on a business partner.  That debt becomes your new boss.  It might not be much but it will govern a lot of what you prefer to do.  Debt will see to it that your future gets a few limits placed on its expense spending ideas.  Debt will grow up and begin to govern where you spend your business income.  Debt will not only boss you around, it will want its money first.  I know what I speak to be true.  If your business has any debt, that debt has become your silent boss.  It controls a portion of your business model.  If that portion is 15% or more, you have a little mess developing.  You have a boss who is beginning to dominate what you can and cannot do in your business model.  You have a small business mess.  You have an unwanted silent partner.

Let's unscramble this business mess.

Page two.

First of all, debt is a regular part of a business model.  Rarely will any business have enough capital to run profitably without incurring some form of debt to manage.  Managing debt is a routine task every business owner will need to perfect in order to perform their leadership job well.  Debt management is usually serious and often permanent.  These truths are real and must be dealt with professionally.

However, shooting to reach a debt-free status for your business model is not an unworthy cause, plan nor impossible.  To unscramble the debt-created, silent business partner relationships that cripples many business models requires that we cut back on the size of the debts we permit to control where our business goes.  The big question remains, can we begin a plan to eliminate debt?  Can we begin the process to fire that silent business partner?

I am a control freak.  I hate to have my ideas run into a limiting set of unwanted controls.  That irritates me to no end.  I want more business control of the things I would like to manage.  When I have too much debt, I am controlled.  I do not know about any of you, but I hate to be controlled!

I had to go fix my business model.  It was carrying too much debt.  However, I did not recognize this problem back then.  I was living big, doing a lot of business and growing well.  I was allowing my debt package to increase along with the growth of my business model.  Life was good.

Then a slow down in the economy showed up on the front doorstep of my business model.  A recession began to arrive.  It was the early 1980's and we had just come off from some record breaking business years.  Expenses were still coming in but the growth in revenues was outrunning the growth of those expenses.  A little short term debt here and there did not hurt the future outlook of where my business was headed.  That is, until the recession decided to make its arrival louder than anticipated.  Revenues dropped off severely.  Did you know that debt does not drop off as quickly as revenues do?  It is true.  I discovered that little business law.

For the next 15 years I worked tirelessly to recover from the business plan of carrying too much debt and not enough revenues.  The business mix of those relationships was one of the ugliest control experiences I have ever had to manage in my business career.  My debt boss was very demanding.  He wanted to control every thought, every inch of sleep I ever wanted and bullied me out of any sense of business control that once helped me to grow a good business model.  Debt is your silent business partner.  It can deliver a very serious unwanted mess.  I know, I repair business models.  I started to learn how to do this work by repairing my own.

The desire to gain control of the decision making process is the first step to removing debt.  Get back the control you need.  Get rid of the debt you have become accustomed to allowing to be part of how your business model works.  Do not accept the weakened plan to permit debt to become one of your silent partners.  Debt is not a fair partner.  It will dominate the money decisions of your business model and it will demand to be serviced first.  Oh, by the way...just in case you have not yet figured it out yet...debt wants to be paid a profit, too.  It is called interest.

Let's unscramble this business mess.  Add to your strategic planning the idea of becoming debt-free in your business operations.  Seriously calculate when that can strategically and realistically happen.  Then set a date and go for the goal.  You will soon discover how well you will learn how to manage your business model so much better.  Get out of this messy thinking that debt is good.  You do not need to take on expensive business partners like this.

Unscramble this mess...

Until next time...