Dear Aunty B,
I’ve been reading your reports on confidence and the fact that very few businesses want to take on debt and thought I had to write in with my problem.
My company is expanding really nicely at the moment, despite the tough economic conditions. In fact, we’ve got a couple of really big opportunities coming up next year, including potentially opening a new office interstate and selling our stuff into the UK.
Problem is, we need capital to do it and my personal reserves are tapped out. I reckon we could get finance from a bank, but the idea of carrying debt scares me witless. I know that it is debt that brings down a company, so should I really be borrowing at a time like this?
Firstly, good on you for staying focused on growth – that’s a great thing right now and long may it continue.
Debt is a really funny thing, you know – entrepreneurs seem to either love it or hate it. Used properly, it can turbocharge the growth of your business. Used too much and it can bring you down quicker than you can say, “I’m not sure we can cover the interest payments this month.”
But you sound like a smart cookie, so I am sure you won’t do the latter. And to reassure yourself, you need to do plenty of homework.
The banks will want to see detailed financials and, more importantly, detailed financial forecasts – projected cashflow, projected balance sheet and projected balance sheet.
Have a go at projecting out as far as five years (very hard, I know) to give yourself (and then the bank) a sense of how the debt will be used to help your business and how you will cope with repayments.
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You want to be comfortable that two things can happen. Firstly, that taking on the right amount of will really take your business to another level and secondly, that you will have the required cashflow to meet repayments with ease.
If you can reassure yourself of these facts, then start talking to the banks and drive the best deal you can. Lord knows that with credit demand so low they should be ready to come to the party for a great business like yours.
Your Aunty B
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