Balance in the Books

Monday, October 16, 2006 at 12:50pm by Evan Prieskop in Start-Ups

I caught a late night comedy skit a few weeks ago. Rare for its breed, this skit actually had me in stitches. I laughed so hard I rolled onto my side in actual pain.

The premise of the skit was as follows: a married couple sits in their kitchen going over their bills and bemoaning the burden of their accumulating debt. The set up is broad, duplicating the feel of those low budget commercials you see on TV for debt consolidation loans or debt counseling services. Sure enough, a stranger walks into the scene and announces that he has a proven system that will help them manage their debt perfectly. Mugging for the camera, the couple ask what this wonderful system might be.

The speaker turns to the camera himself, pulls out his book and says: “If you cannot afford it, don’t buy it!” He continues, “In my amazing one page book you will discover the secrets kept by debt free people all over the world. The key is: if you do not have the money to buy something, don’t buy it!”

The skit then rolls on for several more unnecessary minutes, as sketch comedy is wont to do, but the basic joke was priceless and terrifically well delivered in the first few seconds.

What does all this have to do with you, me, and small business start-ups?

My first business failed. It failed with a small fortune in debts piled against it, most of which my partner and I had to sign personal guarantees for (not an uncommon thing for small business startups), thus the debt did not die with the business. It took me years to pay off those debts after the business closed.

This made me gun-shy. In my current venture, much trouble has been taken to avoid any and all debts. We purchased the school’s land outright and built the school from scratch, rather than purchase an existing building on financing. We advertise, maintain and expand the school’s services only with cash on hand. We started a recording project last month, delayed several weeks pending full financing.

Here’s the hard truth. Financially, my first business was healthier than my current business. Though worthy of several full columns in its own right (columns I may write one day, but not today) the simplest truth of business finances is that debt is a good thing. Smart, managed debt is healthy and productive. Denying yourself profit merely for the comfort of being able to say that your business is debt free is the worst kind of naiveté.

Being a non-profit company, the school has been able to get away with a certain amount of caution to date. Eventually the need to expand and extend our services, fulfill our larger purpose, is going to override my pessimistic conservativism.

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