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Is Debt Always Bad for Business?

January 23, 2009

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Approved Credit Application

I came across an interesting article today about business debt. Joseph Lizio, from Business Money Today, discusses how debt can be a great way to take advantage of a opportunities that will arise in growing a business IF it is managed properly!

He illustrates his point with the following example:

Two similar businesses (Business ABC and Business XYZ). Each earns $10,000 per month in profits. Both have an opportunity to purchase a second piece of equipment for $120,000 that would double the business's profits.

Business ABC - saves its monthly profits and plans to purchase the equipment in a year from now - assuming that the opportunity has not disappeared.

Business XYZ - leverages its current monthly profits, takes a loan and buys the equipment right now. The business uses its current earnings to qualify for the loan and plans to use the additional profits from the new equipment to repay the loan - called leverage.

(Note: does not have to be just for equipment - could be working capital to bid and win a large customer, to change location that has better traffic, to build inventory, or even to complete a big order that was just received).

One year later:

Business ABC - now has $120,000 in the bank ($10,000 per month for 12 months) and wants to purchase the equipment. However, the equipment, due to inflation, now costs $130,000. So, Business ABC will have to wait and save for an additional month before it can purchase the equipment and double its monthly profits.

Business XYZ - has been earning $20,000 per month with the new equipment - less the cost of the loan (say $4,000 per month for an 8%, 36 month facility - life of the equipment). It now has $192,000 in the bank.

So, which business is better off?

Business XYZ - due to financing the equipment - has earned $6,000 per month more than Business ABC over the last 12 months (or $72,000 in total). Not only does this business use the equipment to pay for itself, it has generated additional profits to find and fund new opportunities.


Now, I thought that this was a good article because it points out that debt is not always bad. You see, there's a difference between GOOD debt and BAD debt. Bad debt is going into debt for anything that does not have the potential to make the money back for you. Examples: clothes, eating out, cars, televisions, etc. These items decrease in value once you buy them and will not help you pay back the money you are borrowing to get them.

Good debt, on the other hand, is debt that allows you to buy something that is creating value and cashflow so that you can earn more money than you were without the asset and will be able to pay back the loan from its proceeds. Examples: rental properties (some of them), businesses, equipment, etc.

You see, like the example of the businesses above - sometimes waiting until you have the money can hurt you in the long run IF what you are waiting to buy is something that has the potential to create value and income for you.

Now, I'm not saying to run out and rack up some debt - I'm just saying that some people are so closed-minded about going into debt that they are missing out on opportunities that could really help them get ahead in the long run. Don't be scared of having debt - just be SMART about it and make wise decisions.

-Troy Braithwaite, Utah's Authorized Duct Tape Marketing Coach

Quote of the Day: "Instead of wallowing in my misery, I just made some changes." - Stephanie Mills

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Sharpen the Saw

January 21, 2009

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Sharpen the Saw

I just got finished reading Stephen Covey's 7 Habits of Highly Effective People book and wanted to discuss his 7th Habit - Sharpen the Saw. He relates this habit to the following story:

Suppose you were to come upon someone in the woods working feverishly to saw down a tree.

"What are you doing?" you ask.

"Can't you see?" comes the impatient reply. "I'm sawing down this tree."

"You look exhausted!" you exclaim. "How long have you been at it?"

"Over five hours," he returns, "and I'm beat! This is hard work."

"Well, why don't you take a break for a few minutes and sharpen the saw?" you inquire. "I'm sure it would go a lot faster."

"I don't have time to sharpen the saw," the man says emphatically. "I'm too busy sawing!"

I love this story...mostly because it totally illustrates our prior lives as business owners. We didn't work out, didn't eat healthy, didn't take time for ourselves; all because we didn't have time! Well, after two years of this, we found ourselves in the most unhealthy state that we had ever been in. We didn't feel good about ourselves and didn't have the energy we needed to get everything done in a day.

So, one day, we decided it was time to start "sharpening the saw" again - because guess what? it wasn't going to sharpen itself!

So, now, we work out an hour a day, find time to eat healthy and take time for ourselves - all while running a business and raising a family. And do you know what we've found out? We DO have time to do all of these things after all. We just have to make it a priority and MAKE the time to "sharpen the saw".

It has made a WORLD of difference in our own lives and I would encourage everyone to look at their saw and find out ways to sharpen and rejuvenate it. You really will accomplish A LOT more, feel so much better about yourself and have SO MUCH more energy when you stop to take the time to do these things!

-Brooke Braithwaite

"That QuickBooks Girl"

Quote of the Day: "Sometimes when I consider what tremendous consequences come from little things...I am tempted to think...there are no little things." - Bruce Barton

The Economy & Small Business in 2009

January 13, 2009

I read an interesting article today on the Business Know How blog.  It's entitled "Your Small Business In 2009".  It brings about a couple of items of interest:

1 - Economists are predicting that more startups will be coming this year.  This could be due to a couple of reasons: 1) High job losses and limited traditional employment options, and 2) it's easier and cheaper than ever to start a small business in today's economy.  And with more and more layoffs expected to continue in 2009, I have a hard time disagreeing with them - people are running out of employment options and are going to have to take control and start making money on their own.

2- Despite the increase in start-ups expected, it is also being predicted that small businesses will have to wait until the second half of the year to see any glimmer of economic improvement.  So, what do they advise in the meantime:  Focus on business fundamentals, refine your business plan, and keep your belt tightened.  These are all great pieces of advice.

3- As far as technology goes, it is being predicted that most small business will turn to "in the cloud" (web-based) software for most of their needs.  Why?  It is much more affordable, because you only pay for what you use/need and it makes working virtually much  more possible and efficient.  They also believe we will see an increase in server virtualization, open source software and great use of free online social networking, such as Twitter, Facebook and LinkedIn.  Again, I think they are right on the money with these predictions because I have basically turned to all of these options.  I have recently taken my entire business virtual which has caused me to move all of my data to a virtual server and I have also started looking at switching to more "in the cloud" services. 

4- In this time of tight budgets, it is actually MORE important than ever that the small businessperson STEP UP their marketing.  I have been saying this over and over again and wanted proof that it's not just because I am bias to marketing.  IT IS more important than ever to market right now and be proactive in your business.  It is truly the only way businesses will survive.  And, as always, there are low cost ways of marketing effectively.  They include: blogging, coupons and online social media.

So, what is going to happen in YOUR business in 2009?

-Troy Braithwaite, Utah's Authorized Duct Tape Marketing Coach

Quote of the Day: "Time is more valuable than money. You can get more money, but you cannot get more time." - Jim Rohn

Duct Tape Marketing Launches Affordable Marketing Program for Small Businesses

January 9, 2009

Today was an exciting today for Duct Tape Marketing.  We announced the launch of the NEW nationwide Duct Tape Marketing program called the EXCELerator.  It is a program specifically designed for small businesses who are ready to take their business to the next level and want to have a marketing coach for help, guidance, and accountability in doing so.  And the best part is, it is all available at a VERY AFFORDABLE price.  There is not another nationwide program like this out there. 

For details, watch the video below: 

Plus, as a special bonus - anyone that signs up through me will receive an 8-session marketing strategy course instead of the 4-session course that John Jantsch mentioned on the video. 

In this course, we will create a complete marketing system for your business using the Ultimate Marketing System by Duct Tape Marketing and also the Award-winning Marketing Plan Pro Software powered by Duct Tape Marketing.

If you are interested, contact me at troy@ab4you.com and schedule a FREE 30-minute marketing consultation where I can review your business situation and we can discuss if this program is right for you.

-Troy Braithwaite, Utah's Authorized Duct Tape Marketing Coach

Quote of the Day: "Failure seldom stops you; what stops you is the fear of failure." - Jack Lemmon

Welcome to 2009 - Your Best Year Ever

January 8, 2009

Happy New Year and welcome to your best year ever!  What a ride 2008 was and many people are predicting that 2009 isn't going to be any better...however, we, the small business community, need to DECIDE and COMMIT ourselves to making 2009 our BEST YEAR EVER!

It's definitely possible - it's just going to take a lot of planning, creativity, persistance and hard work.  I am a big believer in the concept that we make this life what we want.  If we decide that the economy is in the pot and there is NO WAY that we are going to make money this year, we won't.  Why?  Because that is what we truly believe and therefore are not pursuing avenues that we rather would if the economy was better.  A lot of folks get it in their head that the economy sucks and there is no work out there - so, what do they do?  They sit around and wait for it.  Well, I can promise that they will not find any work by sitting in their recliner and waiting for it to come to them. 

2009 is the year for the PROACTIVE business owners who know that the economy is struggling right now, however, they believe in themselves and their business and know that they CAN still prosper.  It may just take MORE EFFORT and some adjusting on marketing and/or business planning.

So, did I motivate you?  If not, maybe John Jantsch will.  He is hosting a FREE webinar tomorrow @ 11:00am MST on "How to Build a BOOMING Business in a Busted Economy."  Tune in to get motivated and see why he is one of the nation's top marketing gurus!

To register, click here: http://www.ducttapemarketing.com/webinars

-Troy Braithwaite, Utah's Authorized Duct Tape Marketing Coach

Quote of the Day: "He who sees the inaction that is in action, and the action that is in inaction, is wide indeed." -The Bhagavad-Gita


 


 






 
   








 
   
 

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