Running A Small Business Without Taking On Debt
Running a profitable small business has never been a small task.
Even in a booming economy, we’re up against large corporate “competitors “ in a way that, let’s be honest, is not always truly competitive. How could we possibly connect with an audience with a marketing budget 100th of the size, or match gigantic companies’ offers for free shipping, constantly discounted items, or the ability to save TONS by purchasing inventory in major bulk?
For many small to mid-size companies success consistently looks like just breaking even and staying afloat financially. And now, going into the 3rd year of a global pandemic, with reduced government support for struggling small businesses through grants… it’s lookin’ a bit scary out there for us little guys.
I feel incredibly lucky to have been in a position throughout my 7 years of business where I was never required to take out a business loan or open a credit card to make ends meet. (Though, for total transparency's sake, I did receive a PPP grant in 2020 when I was unable to work!) To be clear, this would have been a MUCH harder task if I had opened a brick and mortar company, or opened a business that required me to invest in inventory or staff from the get-go, so I don’t say that with a tone of condescension to those who do start or grow a business with a loan. As a solo photographer, my startup cost was manageable.
My point in mentioning that is that despite not relying on loans or credit to start or maintain my company, in my early years I found myself constantly riding the line between debt and profitability. I didn’t have a well thought out budget or financial plan, didn’t know how to pay myself a reasonable salary (or sometimes any salary at all), and had absolutely no plan in place for unforeseen costs like broken gear, software pricing increases, or any other emergency.
SO, IN THE SPIRIT OF TRANSPARENCY AND BECAUSE OF MY ABSOLUTE DISDAIN FOR SMALL BUSINESS OWNERS GATEKEEPING HELPFUL INFORMATION FROM OTHER SMALL BUSINESS OWNERS, HERE ARE 3 OF THE FINANCIAL LESSONS I LEARNED ALONG THE WAY THAT HELPED ME REDUCE AND STAY OUT OF DEBT:
(One quick note for the solo/entrepreneurs first is that the very first step you need to do if you haven’t already, please open separate bank accounts for your business and personal finances. Even if it’s literally just you at home and in your business. Separate everything. Partner with a local credit union. Open a free checking account and savings account. Pay yourself from your business account. Track everything. It makes budgeting and taxes easier which is great but honestly, the mental shift that this will create is the real kicker here. You’ll start thinking about money less as “hey look, all my money!” and more like “Wow, super helpful to see how much is left in my business account this month. That’s exactly how much I need to pay in taxes this quarter, good thing that it’s there so the business can pay for it and I don’t have to” ya know?)
Okay onto the real tips!
If you are already dealing with debt:
Make sure to always pay at least slightly more than the minimum required payment on any line of credit you are trying to pay off. Often interest rates are high enough that a minimum payment alone will have you chasing your tail trying to pay it off while the total debt just keeps climbing.
Focus on paying high-interest debts first, to move quickly through lines of credit that will trap you with that tail-chasing thing we just talked about. (But don’t forget to at least pay a minimum on all debts monthly!)
If you are trying to avoid taking on debt:
Consider affordable alternatives to necessary business purchases. Need to upgrade gear? Try to keep an eye out for sale weekends, or wait for a new generation of gear to come out and buy the 2nd latest and greatest option, since those premiums will drop significantly the second it’s considered “last season” so to speak.
Talk with your bank about what programs they have for small businesses. Often times local credit unions have community investment programs that offer grants, scholarships, or member rewards at no cost to you. This can be a great way to secure funds or rewards without taking on debt! (This is also a great marketing bonus if you become a partner that they can shout out. Just sayin’.)
This is so obvious it hurts to even write, but MAKE A BUDGET AND ACTUALLY USE IT.
Go through your bank statements for the last few months and make a note of every single thing. Categorize those transactions. Look for patterns.
Create simple line items. For example: I travel often for work so I looked through a quarter’s worth of bank statements and added up gas, Airbnb stays, plane tickets, and food from those trips and looped them all into a “travel” category. I took that total number and divided it by 3 (aka # of months in a quarter) and used that number as a general budget item.
This truly does not need to be complicated! It just needs to be helpful. If you don’t know how much your business costs to keep alive, how the heck do you know what you’re actually going to bring home as a paycheck? If you have a salary goal of $3,000 a month but your business costs $1,500 to operate and you only bill $3,000… you’re literally selling yourself short!
Here is my actual, for real, still in use business budget.
I get specific and calculated with categories in Quickbooks because by the time it gets there, the money is already spent. A budget is the spending pre-game.
The biggest mental shift for me in creating my budget was that it’s not about restriction. At all. It’s actually about abundance. If I’m in control of what my business costs and the business becomes too expensive because I’m not paying close enough attention, I don’t get to live as abundantly at home because there isn’t anything left for me. Can you imagine if your boss approached you on payday and was like “Bummer dude, looks like your paycheck is going to be smaller this month because I forgot to set some cash aside?”… IMMEDIATELY NO. Why do we do this to ourselves!?