21
Dec
09

It’s hard to grow dragging yesterday’s debt

Debt is easy to accumulate. The simple act of turning on a light creates debt to your power company. When you purchase products to sell or materials and supplies to run your company, an invoice will be heading your way. The moment an employee shows up for work, you owe that employee a paycheck. Anything you purchase without paying cash creates debt. But operating expenses, payroll, payroll taxes and the like represent debt that you clear up before it accumulates. If you don’t, the weight of that debt gets heavy fast. Add the weight of big loan payments, high-interest debt and credit-card debt, and you have all the ingredients to keep your company on the financial brink.

Think of debt as a chunk of lead. A small chunk is easy to carry around all day. Add heavier chunks, and you’ll begin to struggle. Add even bigger chunks, and you’ll need a cart in order to keep moving. If you keep adding lead to the cart, it will reach a point that is beyond your strength limits. Now it will require all of your attention to begin eliminating chunks of lead until you can get the cart moving again. And while you’re busy eliminating weight, all progress is stalled. This is what debt does to a company.

Here are some no-compromise strategies to get debt under control:

  • Profit is NOT cash: You see profit on the bottom line – but where’s the cash? How can this be? Simple, if you’re dragging a lot of debt, all of those principal payments take place on the Balance Sheet. Only the interest appears on your Profit and Loss Statement. You’re cash starved because cash generated from profit is being sapped by debt. If you don’t understand what you just read, you need financial literacy training – and you need it fast.
  • Think before you spend on credit: Will the purchase add to an already heavy debt load? Are you already dragging more debt weight than your cash flow can handle? If the thought of adding more debt makes you nauseous, make do with what you have. Listen to that little voice in your head because it’s usually right.
  • You must have a cash-flow plan: If you love that GPS in your car because it always guides you to your destination, why don’t you love having and/or following a cash-flow plan? Without a cash-flow plan, you’re flying financially blind. And if you’ve been flying financially blind – that explains why you’re dragging more debt than you can handle.
  • Losing weight requires discipline and a plan: All diets work. It’s the dieter who cheats and avoids exercise that’s the problem. Reducing debt often requires leaders to make tough decisions, change behaviors and even change lifestyles. You either commit 100% to reducing debt or you continue to live in a state of financial stress.

Make 2010 your year to shed that unwanted debt you’ve been dragging around. Just as losing weight and seeing where your waistline used to be on the loose end of your belt makes you feel great, so does reducing debt. If you need a hand getting started, give me a call.

Pass this email on to your business colleagues, managers and friends.

Neil Ducoff, Strategies founder & CEO and author of No-Compromise Leadership

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