Running a business comes with many challenges. Not only do you have to constantly recruit customers or clients, but you have to make sure your finances are in order too. Many small business fail because they go into debt, don’t pay their quarterly taxes, or simply get overextended.
However, it’s also important to invest in your business, but should you invest if you’re in debt? Let’s look at both sides of the equation.
The Argument for Investing
I’ve borrowed money to invest in my business even though I had personal debt. Prior to that point, I always had the cash on hand to make small investments, like website upgrades. However, an opportunity came up that was very expensive, but I knew it could catapult my business to the next level.
This opportunity was time sensitive and was only being offered once. So, I took some time to think about it and eventually decided to take out a small business loan to be able to do it. The connections I made from this investment and the way I was able to rebrand my business with the help of a team of mentors was invaluable. I’m so glad I made the decision to invest, even though it was hard to decide at the time.
That said, not all investments in your business are worthwhile. It’s important to take a long, hard look at each potential opportunity and make sure that you’ll be getting a return on that investment. Although it’s hard to tell with complete accuracy, try to calculate how long it will take you to make the investment back and use that to help you decide what to do. For example, you might need a new piece of equipment for your letterpress or photography business in order to offer a new style or product to your clients. Try to gauge interest ahead of time and make sure you have a plan to market your new skills or products.
That said, as long as you think the investment through and it’s large enough to put your business under, it’s definitely worth it to improve and scale your business over time if it will help it grow.
The Argument Against Investing
Many financial experts argue against investing in your business when you’re in debt. After all, business income is already variable month to month, which makes it challenging to project income and expenses each quarter. If you’re in debt, investing in your business does a few things.
First of all, if you spend money investing in your business, you won’t be able to use those funds to pay off your debt. Secondly, if you investing in your business, you risk going further into debt, especially if you don’t have the cash on hand to handle your investments.
Some business owners are more comfortable with risk than others. Some corporations operate with millions of dollars worth of debt that they used for expansion and customer acquisition while other businesses famously operate completely debt free. For example Microsoft, Walgreens, and Bed, Bath, and Beyond are all companies that operate debt free.
Ultimately, debt can be a tool to further advance your business, but if you decide to invest instead of paying off your debt or go into more debt to make a bigger investment, you should weigh those opportunities very careful to ensure you don’t hurt your business in the long run.