A 2015 study from CNBC stated that 8/10 Americans were in debt. This shocking number doesn’t just include entrepreneurs, but anyone in the US. There are many factors to why this number is so high, but this isn’t the topic for this article. As an entrepreneur odds are that you’re adding more personal debt with your business. It’s no wonder why not everyone wants to start their own business because it’s risky, and requires capital.
As an entrepreneur you wear all the “hats” especially if you’re just starting out. One obstacle you will come around is managing your finances. Unless you were featured on Shark Tank, or have business investors you will have to personally fund your own business. However, with technology evolving you are in one of the best eras to launch, and manage your business in a cost effective way.
If you’re ever faced with the dilemma in having to decide if you should invest money for your business, or pay off your personal debt then you should consider the following:
What type of debt are you taking out?
View the examples below.
If you run a real estate business, and decide to take on a $80,000 mortgage it may be wise if the numbers crunch out nicely. If you receive a positive cash flow of $200 in monthly income after all the expenses have been penciled out, then you’ve taken out “good-debt”.
If you buy expensive equipment for your business such as: new laptop, new phone, or a better application just because you can write it off at the end of the year then you’ve found some “bad-debt”. This is assuming you’re only purchasing the new material because of a “want” for your business, and not a “need”.
What’s your ROI
Whether it’s good or bad deb you have to consider what is your “return on investment”. For example, if you’re purchasing a new email service then you can take into account many factors. You can consider the time it would save you by not having to reply to every single email that you receive, and the time you save in designing an email template. From this example you can rest assured your ROI is worth your investment.
Having an email service may be an obvious choice for most businesses, and depending on which provider you choose it can be an affordable investment. However, sometimes we fail to use the same logic when we consider hiring a business coach, or buying that new Facebook Ads course everyone keeps talking about.
The truth is you can pretty much find all the information you need on the web for free. There will be circumstances when it makes sense to purchase information especially as you begin to grow your business. However, if you’re just starting out there’s no need to go into debt in my opinion.
Building a business takes time, and much of your personal energy with the content you will provide to your audience. So don’t go out purchasing “shiny” objects just because you think they will make you or your business better.
How much debt do you have?
This is a question that only you have the answer to, so begin to calculate your net worth. Grab your free template HERE. Plug-in your checking/savings account information along with your expenses.
Ok so after you’ve done this mini-exercise you’ll have calculated your net-worth. If you are in the red don’t be alarmed because I myself as well as millions of others fall in this category. If you are in the green congrats!
The reason for this exercise is for you to get a snapshot of your financial health. You’re probably thinking “I want to get to the green!”, and this is good. This will make you think twice before you shell out your hard earned cash to any coach, or course for your business.
What’s really needed for your business
This will vary for every business since each one is unique. However, there are some core necessities that you need for your online business. The list below is assuming you own or want to start an online based business.
- Email Service
- Leadpage software (unless you want to spend time creating them yourself)
The list above isn’t the “ultimate-list”, but should be used to give you a perspective when deciding to purchase your next product or service. Depending on which stage your business is in you may require to spend more cash, or more of your personal time.
Tip: It may be a good idea to sit down once or twice a month to review your business & personal expenses. From the very begging know what you’re investing in, and if it’s really helping your business.
Putting it all together
Hopefully by now you have a clear picture on what your net worth is, and what’s really required for your business. Going back to the core necessities this will vary for each business. However, many times it’s easy to fall for the “shiny” object syndrome, and buy a course/product that we truly don’t need (at least in this very moment).
The million-dollar question is “should you invest money on your business or pay off your debt?” Based on all the mini exercises that were previously described in this article you should have an answer. Personally I’d recommend you focus on paying any debt ASAP! With this being said, you also don’t have to wait to pay all of your debt to launch a business that you’re passionate about. You just need to be very vigilant on what you spend your money on, and stretch each dollar to its maximum potential.
Here’s one way to think about your money. Each dollar you have is one of your employees, and your goal is to guide your employees to success. Money is not the root of all evil, but if you can’t manage $100 what makes you think you’ll be able to manage $1,000,000?
I hope this article helps you make sound business decisions when investing your hard earned cash. I’ve been victim to purchasing software/courses that didn’t help my business, and only brought me to further debt. Fast forward a few months, and I’ve spent hundreds of dollars that currently have no impact for my business. This was mainly due to me changing to a different business niche, and not fully tracking my expenses.
You however have the power to make better financial decisions for yourself, and your business based on my expensive mistakes. So if you’re $1000 or more in debt then you can hold off in hiring that business coach, or that course that promises to help you launch a 6-figure business in 30 days (they exist!). If it sounds too easy or too good to be true, then it is. Find a niche that you’re passionate about, and deliver amazing content consistently. Focus on helping thousands of people, and the money will follow.
Good luck in growing your business while reducing your debt!
I’d love to hear your feedback.
If you’ve faced a similar dilemma between choosing to invest in your business, or payoff personal debt please share away.
1. Launch a Business you are Truly Passionate about: The Affordable Way
2. Will It Fly? How to Test Your Next Business Idea So You Don’t Waste Your Time and Money
3. Launch a Business around what your customers want