What are the negatives of your business?
Your Assets are, for the most part, your positives and your Liabilities are, for the most part, your negatives. Your Liabilities are basically what you owe.
Back to the car analogy, your shiny exterior is your Assets and the interior components are your Liabilities. A luxury car is going to go to extreme lengths to make sure your interior is very comfortable and convenient for your travel time.
The image of heated, leather seats and built-in GPS that are requisite in a luxury car summarizes your Liabilities. These items are like your business debt. Your debt can be revolving lines of credit, mortgages for property, credit cards, etc.
Arguably, these things are not necessary for your car. Your car would function just as well if you were sitting on a plastic bucket with a dinner plate for a steering wheel and a couple of large potatoes for the gas and brake pedals.
Likewise, you do not need debt to operate your business; it just makes it more comfortable to travel from point A to point B.
Debt is a tricky topic. I think everyone would agree that debt has been abused and, as a result has inspired many people, like Dave Ramsey, to take up the standard against all forms of debt, regardless of the type of debt and the use for the debt.
Though I agree with Dave Ramsey that being shackled by debt is an awful way to live, I tend to ascribe more to Robert Kiyosaki’s philosophy in Rich Dad, Poor Dad that there is good debt and bad debt.
Kiyosaki explains that purchasing a pair of fancy shoes on a credit card is typically bad debt—you receive nothing in return. However, if purchasing those shoes was somehow going to land you your next big job, which would provide additional income for you and then pay off the shoes as quickly as possible, perhaps you would agree that the debt incurred in this situation would be classified as good debt.
So bad debt you pay for and good debt pays for itself. There is always risk involved in incurring this kind of debt, but that is the very nature of being an entrepreneur. My belief is that being responsible about the debt you incur is most important.
Any way that you look at the philosophy of incurring debt, it equates with the interior of the car and increases the comfort of your business travels. So do you really want the luxury interior? You can decide on that with help from your Business Coach, Financial Advisor and Accountant, but make sure to consult this team before acquiring more debt.
Either way you go,
Without Foundation, your business fails!