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We can’t deny the fact that there are risks getting into a business and one of them is going into debt to start your own. The good news is there are other ways to start without going into debt or using line of credit inappropriately. In this episode, Nate Woodbury will be talking about the other options you might want to consider when starting your business.
Should you go into debt to start a business? A lot of people do it. A lot of people think it’s a good idea. It might be a bad idea. Let’s talk about that. All right, you kind of left us hanging there. Because you didn’t, you know, state with clarity. Because it was just the introductory little hook if it’s a good idea, if it’s a bad idea. Yeah, are you straddling the fence on this one again to you’re saying… I’m going to stay from the beginning, I’m leaning towards it’s a bad idea. To go into debt to start a business. You know, I’ve got some, some reasons why. But the biggest reason is, if you’re not experienced as a business owner, you’re taking on a huge huge risk most businesses fail. And you’re going to go into debt to start something that you’re not… You yourself have used the word risk in the past. You know, that it’s risk, there’s risks you got to take in order to be an entrepreneur or stuff like that. Shouldn’t that be kind of included though in waiving this question? I actually really embrace risk. I think there’s a lot of risk in entrepreneurship. But that’s the other after you kind of know what you’re doing, is that what you’re saying? Well, there’s different degrees of risk. It’s like calculated risk. That is true. Calculated risk I think is important for growth than and anything. But the risk of getting… This is a real number. I did not… Maybe I’ll step back. When I started my business, I did not go into debt. I was behind on my bills as I’ve talked about this story in the previous videos. But I did not have to go into debt to sell or create my service. I just tellemarket it. I didn’t pay for advertising. I just, you know, pounded the phones. Dial the number, there you go. Right, right. People will get that, sure. And called and called and called. And got some sales. I was able to be profitable. Now, a few years later, I had some ideas of expanding and growing and I made a bad decision. I got a $15,000 line of credit, business loan from Zions Bank. They’re the only bank that would give it to me. And my plans didn’t work out as I foresaw. Yeah, that that’s been something that I was… That that burned you a little. So, you’re… So, to go into debt to start a business, you haven’t had that experience yourself? And I see large companies or they’re like they’re doing of funding, they’re funding phase, so they’re gathering all this debt and whatnot and then they’re finally going to be profitable in 3 years. That’s a different world. I don’t know that world so I can’t really talk to that world. Right. Let’s be clear. We’re talking about small business owners. Yes, Solopreneurs, small businesses. That’s a dangerous thing. If you get a loan before you actually know that you can make a sale.
So, it’s got to be a calculated risk. If you’re going into debt because you’re already making sales but you just need more inventory or something, that’s… You’re just getting more inventory because you got customers that need to buy it. That’s different, yeah. I can’t give blanked advice across the board. Yeah. But just understand that there’s a huge risk. If there’s a way of starting your business kind of bootstrapping it and growing yourself into a good income, if I’m saying it the right way, that’s that’s definitely my recommendation. So, yeah, just kind of allow the natural growth that occurs and be prepared for it based on the capital that you begin with which is probably from your own pockets, from your own savings, from your kids college fund, from retirement. At least that’s not debt. I mean, some people would say, “Gosh, I’ve got to cash in some of my 401k and after, I’m going to take a big hit on taxes.” But I need something to start with. At least it’s your money, right? I mean, you know you won’t owe anybody. I believe that we all kind of have a ceiling or a thermostat that work will almost operate. Those are two completely different things. Let’s use the thermostat then. I could go either way. Let’s go with the thermostat. thermostat or thermometer? Thermostat. Okay, so because thermostat regulates the… Thermostat regulates. So, if we want to be right at 72 degrees or that’s where we’re comfortable, if the heat starts to get turned up, the AC is going to turn on and bring us right back down to where we’re comfortable. Okay. So, what I what I’m talking about here is, if finances are tough and I don’t have a loan. So, I’m trying to make it by I’m trying to make enough sales, the heats going to be turned up and I’m going to be working hard to make ends meet. I’m going to be thinking outside of the box. I’m going to be trying things that I normally wouldn’t do. I might be working longer hours. So that I can make sure that we get results. But if I’ve got a loan, Zions Bank gives me $15,000. It’s like, “Yeah. Okay, I’ve got a little cushion here and I can, you know, it’s going to pick up next month, you know, just keep doing what I’m doing. It’s going to get better and better.” What you would think that that pressure to perform the pressure, to pay that back for most people would be the thing that ignites them, gets them out and calls, “Holy, I don’t want to default on this loan.” But that interest rate was 5%. And it’s like… That’s just a risk. I mean, hopefully you think it didn’t work that way for me. Obviously. But you’re okay now. Yeah. So, it worked out. You got out of debtors prison or whatever. Whatever they do to people like you. It’s a mental, it’s a mental prison. Yeah. So, you know, I thought that we could turn this video into some practical advice because I was not taught this from an early age. I did not know how to use a credit card. I knew that credit cards were good for developing credit. Right. And so, I got a credit card… For renting cars and you know what I’m saying. I mean, you have to like or to check into a hotel, you know, things like. But as you’re a teenager or entering your 20’s and you’re starting to like get into career thinking and you’re starting to develop your credit, that’s the age I was in my early 20’s and I got some, I got some credit cards. The mistake that I made and this sounds obvious. But I bought things when I didn’t have the money for them. Yes. But I I thought that I was going to get the money. I had a summer sales job for a few summers. Okay, okay. And I like, you know, last summer I did really well made 20 grand in just three months. So, I’m going to buy this thing now. Let’s say it’s spring. Yeah. I’m going to buy, I’ll just be real, I’m going to buy this audio recording equipment for my acapella group because I know I’ll be able to pay it off this summer. That’s too nerdy to make up. I’m going to make…. That’s totally true. I’m going to make twice as much this summer. It’s really what I was thinking. Yeah. Did I make twice as much? I don’t know. I mean more about only by like a couple few thousand. And I actually could have paid off my studio equipment. But you didn’t? But then I needed a new car and I actually had enough cash that I could have paid for the car. But I thought, “Well, I’ll pay half of it with cash and I’ll put half of it on my credit card. So, I can build up my credit.” Anyway, a few years later, all my credit cards were maxed out. And I was struggling to make the payments on them. Yikes. Yeah. So, it’s a… Man, it was rough and I carried that burden of that debt into my marriage and it was… That’s a real problem. Yeah. Interests never sleeps.
So, the right way, let’s talk about what is the right way to use a credit card? And I love this. It’s if I’m going to buy something that I have money for, So, first of all don’t buy it unless you have the money for it. So, yeah that’s the problem with most kids these days is they’re not educated on that. No, they just go, Oh, this just buys me things. Yeah. So, you have to have… If I’m going to go buy some clothes and it’s going to cost me 200 bucks. I need to have that 200 bucks in cash or in my bank account. Right. But then I can use my credit card to Buy it. And then pay it. And then when I get home, I sent 200 bucks to pay off the credit card. That’s a good way to use a credit card. And it will develop your credit. You get that little bonus points or whatever per credit card has. So, it’ll build your credit and you won’t get into trouble. But that’s really, the only way that you should really use credit cards in my opinion. Yeah, I mean, they’re like it says, there’re risks. I’ve never used credit cards for business… I mean, I use them for business all the time because they have a business card for my business. But in terms of, you know, saying, “I know I’ve got a $35,000 or fifty thousand dollar limit on this card. or I can write a check today for 25 grand.” That’s basically, the credit cards way of saying, companies saying, “You’ve got an 800 score, we love you, here’s some free checks. Go on a spending spree.” But if I know it’s a capital investment and it’s something that I absolutely must have for my business, it’s hard to resist that. You know, if I need to buy the zoom h2n or h4n, right? And I know that it’s going to set me back two grand or whatever they are. 150 bucks. Well then I’ll just walk out of the store with it. Not even going to pay if it’s 150 bucks, they’re not even going to miss that. So, just stealing. I don’t know where this video is going. No, I was going to say, I’ve always lived that way. The same way. If we don’t have the money for it, we’re not using the card. The card really is for us to get miles, to get points and to build our credit score. That’s really all it is. And then in those rare, rare, rare emergencies when you know, you’ve got a dental emergency. Something maybe that you might not have as much money for. But you know, “Okay, we’ll pay it off in 2 months.” It is nice to use an emergency. It’s better to have a nest egg of cash for an emergency. But you know if you’ve got something comes up… It’s never happened to me personally but I’m just saying. So, I’ve got another piece of advice going back to starting a business. You know, with debt. My recommend… You can start your business in a grand way. And if you think about all the different services I’ve offered, from website design, searching an optimization, to video production to all the stuff that I do for YouTube. All the nerdy stuff. The events that I’ve put on, okay? I think it’s cool. It is. Imagine if I would have day one launched all those services at once. And then I would need all the camera equipment, I need this or… Or think about if you’re going to start a store and you’re going to have one product versus a whole product line right from the beginning. Mm-hmm. My recommendation is just to start with one thing, keep it simple. Start with one thing and make sure you can sell it and sell it well. And when that starts to take off, start another service or start another product. Because in order to start big and you’re not selling any one thing, you’re going to have to go into debt to do that. And it’s better when you have the focus. So, another point or advice that I want to give, you may have heard the phrase, “Shiny object syndrome.” Have you heard of that? I can imagine what it is. I’ve heard of a shiny object. Yeah, so if you’ve… Shiny object syndrome means that you can’t resist. So, some new opportunity comes along or some new some new course or some new marketing thing, “Oh, it’s this new app that’s going to send people a text message and get…” You’re going to get tons of leads. It’s like, if it’s really cool, you’ve got a book market but you’ve got to stay focused on the thing that you know is going to work and because stuff like that can just eat up your funds, it can pull you into debt. A lot of organizations are never debt free. I mean, they have debt service that goes on and on and on and on. That’s just part of who they are. And I think about, I think about that I’d scale it down to just me on my own. And I go, “My gosh, I could never sleep at night.” I would never… I still drive by these buildings and see these big companies and know that they’re constantly in debt. That we might make profit. A profit, this quarter for the first time in 5 years, a profit? You mean, you know, we’re actually going to make more than we’ve spent and all of our debt and everything else. I mean that is frightening to me. But it’s tempting to go, “I’ve got a card that I know has this much I could use.” Don’t do it. It’s just, just nice, measured approach. Well, hopefully enjoyed this episode. Hopefully found some advice there that will benefit… You’ll have to dig. You might have to dig a little. Talk about your comments. Exactly. Alright, like, subscribe. We’ll see you tomorrow.