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A No-Debt, Entrepreneurial Business

Here’s a startling fact: 44% of small business owners use credit card debt to fund their business expenses. And here’s another scary bit of data: 40% of middle-income and lower-middle income families—many of whom run small businesses—use credit cards to fund their daily needs. (Stats:

So what does this kind of debt mean for the start-up entrepreneur? This is what it means: stress, pressure and worry. When we use our credit lines to fund our small business start-up, our business’s needs or our own, personal expenses we’re absolutely putting ourselves in a pressure-cooker.

But isn’t that what our credit lines are for, you may be thinking. Isn’t starting a business with credit a worthy venture? And I say, no, not really. How come? Because when we put our budding ventures under extreme pressure to succeed, they often fail instead.

Here’s how it works. Let’s say you front yourself credit card cash to start your business. You fund your supplies, your rent, your inventory, your professional services—whatever you need to get going. Let’s say you even have a business plan that outlines what you think you’ll make in the first three months or year—and that’s more than many of us have when we begin, by the way.

So now you’re in debt, and because your start-up capital came from credit, you’ve probably been less-than-careful about what to spend and how much to spend, and now you’ve got some very real, high-ticket monthly balances to deal with each month. Add to that mix anything unexpected: your new personal gym didn’t draw members as fast as you projected. Your writing business didn’t draw as many projects as you hoped. The chiropractic office you spent $200,000 opening didn’t bring in clients immediately. Or, the economy tanked and your gourmet cake business is in a now-depressed neighborhood.

Now, you’re worried. Add another month, two months, and then three. Now, you’re more than stressed—you’re desperate.

And here’s the fly in the debtor-ointment: your desperation often makes you fail. There it is in black and white. High-ticket debt—or fronted cash in any form that we can’t pay back while still earning enough to reasonably live—makes us crazy. Our worry, our frustration, our sheer panic makes it impossible for us to let our budding projects to grow at a normal rate. We can’t even see straight we’re so worried, and that affects our every entrepreneurial move.

What we need to do is give our new projects the dignity of a normal growth arc. Our new business is like a child that we’re trying to raise to stand on its own two feet. But when we’re breathing down that kid’s neck at three months old to deliver, we’re in for a bad, bad train ride.

Think of it this way: we wouldn’t expect a seven-year-old to do math at a college sophomore level. So why are we expecting our brand new business to deliver like it’s been on its feet for two years?

Here’s why: because we ran up debt to fund it and we’re panicking.

So what’s an entrepreneur to do? Here’s what: fund every step, in cash. I know, I know—you’re thinking, But that will be too SLOW! It will take too long! No doubt, your growth will be a little slower. But that’s what really works. That’s what’s going to keep you from going crazy, and it’s what’s going to allow you to build at a steady rate. Think: slow, steady steps.

Here's what this is going to mean: It means you may work out of your kitchen for three years instead of one. You make take on clients at half the rate you thought in the first year—but you’ll pay all your suppliers in cash each month. You may keep your dayjob longer or phase out at half-time until your business grows. But I guarantee that you will be saner, kinder to yourself and everyone around you—including your customers—and you’ll be easier to live with.

I’m speaking from experience. About ten years ago I used what I thought was my God-given, American “right” to run up credit for a new venture. I did it to the tune of about $80,000 to start a music recording and publishing project. And the project didn’t sell. In the end I had hives, nightmares, and didn’t sleep for months.

I have learned the hard way to not engage in what I now call “magical thinking”: that somehow if I run up debt to fund something I love I’ll be “rescued” because I took a risk. Don’t do it. There’s a much saner way to build your business, and as I say in my book, it’s infinitely more peaceful.

Here’s the final upshot: when we pass on the nasty experience of desperate, crazy, gut-wrenching debt-stress, we will be able to truly focus on the gifts of our new business. You will not bear the burden of a downturned economy when you’re not in debt, and you will not live in panic.

Funding our new business with slow, steady steps—in cash—means our heart, mind, soul and family will be at ease with our new project. We will learn to use our creativity instead of our credit lines. And with the pressure-cooker of debt off the table, we can truly take joy in every growth step our business takes, all along the path.

Your business will grow at a steady rate, and you’ll be able to lay your head down in peace when you go to sleep.

It wasn’t, in the end, at all worth it. I have often thought about how I would feel if my gamble had succeeded. But here’s what I know: if I would have “won” at debting one time, I would have done it again—this time with an even higher debt balance. I’m grateful that my crash-and-burn came then, and not when the balances were even higher.

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