August 6, 2024 • 10 mins
In this special 100th episode of Beyond Margins, host Susan Boles delivers her first solo discussion on utilizing debt thoughtfully to fund service businesses. Drawing from her experience as a fractional CFO, she explores the benefits and strategic uses of debt, shares real-world examples, and provides practical tips for business owners facing cash flow challenges or looking to seize growth opportunities.
- (00:00) - Introduction to Business Funding Options
- (00:37) - Celebrating 100 Episodes: A Solo Special
- (01:51) - Understanding Debt as a Strategic Tool
- (03:28) - Real-Life Examples of Strategic Debt Use
- (04:57) - Mid-Roll Ad
- (05:39) - Choosing and Managing Debt Wisely
- (07:30) - Planning and Managing Debt Repayment
- (09:24) - Final Thoughts and Upcoming Topics
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Susan Boles (00:02):
How you choose to fund your business can have a
big impact on what your businesslooks like and feels like to
run. Taking on investors meanslosing some control and
ownership over something you'vebuilt. Crowdfunding takes a big
investment of time and a decentchunk of money. Grants are time
consuming to research and applyfor and ultimately may not end
(00:25):
up providing any capital at all.But debt is something you can
access pretty easily andquickly, and when you use it
thoughtfully, it can be a reallypowerful resource to fund your
business.
I'm your host, Susan Boles, andthis is Beyond Margins, the show
where we geek out about buildinga calmer business and right now,
about how to fund your servicebusiness. Today, I wanna try
(00:48):
something a little different. Sothis is episode 100 of Beyond
Margins. And in those 100episodes spanning the course of
6 years, I've covered a lot oftopics and interviewed a ton of
amazing guests. I took a 6 monthsabbatical that turned into 2
years.
More about that in episode 94 ifyou're curious. I renamed and
(01:09):
rebranded the show, but there'sone thing I've never done. Not
in 99 episodes. And that's asolo episode where you're just
gonna hear from me. I wanted tocelebrate my 100th episode with
just that, and to have some funplaying around with the format a
little bit.
So today, it's all me. And we'recontinuing our discussion about
(01:30):
accessing funding for yourservice business. We've already
talked about equity funding ortaking on investors with Ida
Henrys, and I geeked out withLena West about the downsides of
equity funding and whycrowdfunding could be a viable
option. So if you missed those 2episodes, go back and check them
out because they were so juicy.Today, we're talking about debt
(01:53):
and how to use it strategicallyin your business.
And given my day job as afractional CFO, this is
something I talk about with justabout every client
I have, especially this year.
Now for many of us, the word debt might carry a
negative connotation. We've beentaught to avoid it like the
plague, to pay everything off assoon as possible, and to see it
(02:14):
as a last resort. But debt canbe a useful tool, just like any
other resource you might use inyour business. It's also the
form of capital that servicebusinesses usually have the
easiest time accessing. Sure.
Debt, like anything else, whenused in excess can be a bit of a
problem. But if you'rethoughtful about how you use it,
(02:34):
it can be a very powerful toolto help your business grow. It's
not just about borrowing money.It's about using that money to
grow your business in asustainable way. Now there's 2
primary reasons you mightconsider taking on debt in your
business.
1st, to get you through rougherbusiness seasons, and second, to
fund strategic growth. Thisyear, many consultants and
(02:58):
agencies have faced rougherseasons. Sales pipelines are
quieter, deals are taking longerto close, and cash flow is
tight. And that can be a prettyscary position to
be in, especially if you don't have
a decent cash cushion to fall back on. When
you're scared and panickingabout what to do next, it
doesn't feel calm. Plus, no onemakes great decisions when
(03:19):
they're in panic mode. But thiscan be a great use case for
taking on some debt temporarilyto get you through those tougher
times and to carry you through.Let's take the example of Anna
who runs a small marketingagency.
This past year, like a lot offolks, Anna had a pretty big dip
in client projects. She worksmainly with tech companies, and
(03:39):
the layoffs and restrictedbudgets in the tech industry
meant that she didn't have asmany projects coming in as she
normally would. Her cash flowwas suffering. She was worried
about making payroll. Butinstead of panicking, Anna
decided to take out a short termline of credit to cover her
immediate expenses.
This allowed her to keep herteam intact and focus on landing
(04:01):
new clients without the constantstress of cash flow issues. So
within a few months, her agencywas back on track, and she was
able to
pay off that line of credit. Anna was able to
use some temporary debt to get her through, and
that's a great example of usingdebt strategically when times
are a bit rougher. Or we couldtalk about Jason, who's the
(04:21):
owner of a small IT consultingfirm. Jason's business was
growing steadily, but he neededto hire additional staff to take
on larger projects. However, hedidn't have enough cash on hand
to cover the salaries for newhires. Jason decided to take out
a business loan to finance thehiring of 2 new employees.
That allowed him to take onbigger contracts, which in turn
(04:43):
increased his revenue. And withthat increased revenue, he was
able to pay off the
loan ahead of schedule. And Jason's story
highlights how using debtstrategically can enable you to
seize growth opportunities thatyou might otherwise have to pass
up. One of
the foundations of running a calmer business is
having comfortable margins, anddebt can be used as a resource
(05:04):
to create some of those margins.You can use debt to fund
salaries for new team members,to create growth and build
capacity margin for existingteam members. You can use debt
to create some margins in yourbank account when you're running
out of cash. You can use debt tofund a much needed leave
of absence and give yourself a rest. Really, debt
can be a tool for growth, a tool
(05:26):
for crisis management. It can be really
whatever you decide to use itfor. But in order to use debt as
a tool to build margin and tomake your business feel calmer,
you need to be very thoughtfulabout taking on that
responsibility. When you'reconsidering using debt to fund
your business, there are a
few things you should be considering. First,
you need
to have a really clear understanding of why you
(05:47):
need the debt. Is it to covershort term cash flow gaps, to
expand your team, to fund thedevelopment of a new service or
a new program? Understanding thewhy will help you be able to
choose the right type of debtfor your needs. When it comes to
taking on debt, not all debt iscreated equal. Lines of credit
(06:08):
can be great for short termneeds or to fund seasonal cash
flow gaps.
They're designed to be used forsurges, so you can take a little
bit of debt, pay it backquickly, and then use the line
of credit again. That line ofcredit could be just your
business credit card, where youchoose not to routinely pay off
the full balance each month andcarry a bit of a balance, pay a
(06:30):
little bit of interest on it. Orit could be something bigger,
like an actual line
of credit from a bank. But if you need
to fund longer term growth, like hiring staff
members or purchasing equipmentor investing in the development
of a new product, something likea term loan with fixed monthly
payments might be your bestoption. And if you don't have
(06:50):
access to a traditional line ofcredit, a credit card, or a term
loan, whether that's because youhaven't been in business very
long or your personal creditscore isn't all that strong or
you just don't have the revenueto support that funding, there
are other, frankly, moreexpensive debt options like
invoice factoring. And that'sbasically where a company buys
your outstanding invoices, takesa percentage of that income, and
(07:12):
then advances you the cash. Youcould think of it kind of like a
payday loan for your business.It's not a great option.
It's pretty expensive. But ifyou're really in a cash crunch,
it can be a necessary tool. Sowhen you're thinking about using
debt to fund your business,really consider what type of
funding you really need. Onceyou decide on what type of
funding you're looking for, youneed to have a clear plan for
(07:35):
how you'll repay the debtbecause this is where there's
potential to get into trouble.Some debt options have terms
that mean you'll have a hugerepayment coming quickly, and
you really need to make surethat your business can handle
servicing, meaning paying backthe debt.
So it's important that youunderstand your cash flow so
(07:55):
that you can make sure you canmeet the repayment terms of the
debt without putting too muchstrain on your business. If
you're deciding to bring on debtto create value or fund growth
in your business, it's importantto understand what the real
world potential is of thatvalue. I personally always like
to be very conservative whenestimating growth or an increase
(08:15):
in revenue, and I expect it totake way longer than I
originally think to actuallygenerate that revenue. So if you
are building out a projection,give yourself a lot of cushion.
Once you've taken on debt,monitor your financials closely
to make sure that you're ontrack with your repayment plan
so you can adjust the plan if
you need to. And if you're lucky enough to be
(08:37):
in a really great place financially right now and
you don't need additionalfunding right at this moment,
it's still something to considerputting in place. Getting a line
of credit to use when you needit is way easier when things are
going really well than when youreally need it. So one of the
unfortunate ironies of thefinancial system is that banks
(08:57):
are happy to give you money whenyou don't need it. But when you
do, it can be incrediblydifficult to access. So you
might consider getting a line ofcredit now to give you access to
a bigger cash cushion if youneed it down the road.
The ideal situation would be tohave a comfortable cash cushion
and access to
a line of credit so that
(09:17):
you have lots of flexibility to manage cash
crises or to fund growth whenyou need it. Using debt in a
thoughtful way can be one theeasiest and most accessible ways
to get some additional fundingto run your business, whether
that's for cash management or tofund growth. But it's important
to use it wisely and to have aclear plan in place. Debt isn't
(09:39):
right for every situation, whichis why I've been talking about
lots of other options liketaking investment or
crowdfunding, or in the nextepisode, we'll be talking about
using grants as funding. Butdebt is generally pretty
accessible.
It's usually one of the quickerways to access outside funding,
and it allows you to maintaindecision making power and
(09:59):
control in a way that somethinglike equity investments won't
allow. So it might be the rightchoice for you. And as long as
you use it thoughtfully, it canbe a powerful tool to help you
run a calmer business. Nexttime, we're wrapping up our
discussion of funding types witha chat about how and when you
might think about using grantsas a source of funding. So hit
(10:21):
subscribe in your favoritepodcast player so you don't miss
it.
How'd you like this episode? I'dlove to hear what you thought
about the solo format. Do youwanna see more of these? Did you
hate it? I'd love to hear yourfeedback.
Just click the link in the shownotes. You can send me an email
or leave me a voice mail, andlet me know what you think.
How you choose to fund your business can have a
big impact on what your businesslooks like and feels like to
run. Taking on investors meanslosing some control and
ownership over something you'vebuilt. Crowdfunding takes a big
investment of time and a decentchunk of money. Grants are time
consuming to research and applyfor and ultimately may not end
(00:25):
up providing any capital at all.But debt is something you can
access pretty easily andquickly, and when you use it
thoughtfully, it can be a reallypowerful resource to fund your
business.
I'm your host, Susan Boles, andthis is Beyond Margins, the show
where we geek out about buildinga calmer business and right now,
about how to fund your servicebusiness. Today, I wanna try
(00:48):
something a little different. Sothis is episode 100 of Beyond
Margins. And in those 100episodes spanning the course of
6 years, I've covered a lot oftopics and interviewed a ton of
amazing guests. I took a 6 monthsabbatical that turned into 2
years.
More about that in episode 94 ifyou're curious. I renamed and
(01:09):
rebranded the show, but there'sone thing I've never done. Not
in 99 episodes. And that's asolo episode where you're just
gonna hear from me. I wanted tocelebrate my 100th episode with
just that, and to have some funplaying around with the format a
little bit.
So today, it's all me. And we'recontinuing our discussion about
(01:30):
accessing funding for yourservice business. We've already
talked about equity funding ortaking on investors with Ida
Henrys, and I geeked out withLena West about the downsides of
equity funding and whycrowdfunding could be a viable
option. So if you missed those 2episodes, go back and check them
out because they were so juicy.Today, we're talking about debt
(01:53):
and how to use it strategicallyin your business.
And given my day job as afractional CFO, this is
something I talk about with justabout every client
I have, especially this year.
Now for many of us, the word debt might carry a
negative connotation. We've beentaught to avoid it like the
plague, to pay everything off assoon as possible, and to see it
(02:14):
as a last resort. But debt canbe a useful tool, just like any
other resource you might use inyour business. It's also the
form of capital that servicebusinesses usually have the
easiest time accessing. Sure.
Debt, like anything else, whenused in excess can be a bit of a
problem. But if you'rethoughtful about how you use it,
(02:34):
it can be a very powerful toolto help your business grow. It's
not just about borrowing money.It's about using that money to
grow your business in asustainable way. Now there's 2
primary reasons you mightconsider taking on debt in your
business.
1st, to get you through rougherbusiness seasons, and second, to
fund strategic growth. Thisyear, many consultants and
(02:58):
agencies have faced rougherseasons. Sales pipelines are
quieter, deals are taking longerto close, and cash flow is
tight. And that can be a prettyscary position to
be in, especially if you don't have
a decent cash cushion to fall back on. When
you're scared and panickingabout what to do next, it
doesn't feel calm. Plus, no onemakes great decisions when
(03:19):
they're in panic mode. But thiscan be a great use case for
taking on some debt temporarilyto get you through those tougher
times and to carry you through.Let's take the example of Anna
who runs a small marketingagency.
This past year, like a lot offolks, Anna had a pretty big dip
in client projects. She worksmainly with tech companies, and
(03:39):
the layoffs and restrictedbudgets in the tech industry
meant that she didn't have asmany projects coming in as she
normally would. Her cash flowwas suffering. She was worried
about making payroll. Butinstead of panicking, Anna
decided to take out a short termline of credit to cover her
immediate expenses.
This allowed her to keep herteam intact and focus on landing
(04:01):
new clients without the constantstress of cash flow issues. So
within a few months, her agencywas back on track, and she was
able to
pay off that line of credit. Anna was able to
use some temporary debt to get her through, and
that's a great example of usingdebt strategically when times
are a bit rougher. Or we couldtalk about Jason, who's the
(04:21):
owner of a small IT consultingfirm. Jason's business was
growing steadily, but he neededto hire additional staff to take
on larger projects. However, hedidn't have enough cash on hand
to cover the salaries for newhires. Jason decided to take out
a business loan to finance thehiring of 2 new employees.
That allowed him to take onbigger contracts, which in turn
(04:43):
increased his revenue. And withthat increased revenue, he was
able to pay off the
loan ahead of schedule. And Jason's story
highlights how using debtstrategically can enable you to
seize growth opportunities thatyou might otherwise have to pass
up. One of
the foundations of running a calmer business is
having comfortable margins, anddebt can be used as a resource
(05:04):
to create some of those margins.You can use debt to fund
salaries for new team members,to create growth and build
capacity margin for existingteam members. You can use debt
to create some margins in yourbank account when you're running
out of cash. You can use debt tofund a much needed leave
of absence and give yourself a rest. Really, debt
can be a tool for growth, a tool
(05:26):
for crisis management. It can be really
whatever you decide to use itfor. But in order to use debt as
a tool to build margin and tomake your business feel calmer,
you need to be very thoughtfulabout taking on that
responsibility. When you'reconsidering using debt to fund
your business, there are a
few things you should be considering. First,
you need
to have a really clear understanding of why you
(05:47):
need the debt. Is it to covershort term cash flow gaps, to
expand your team, to fund thedevelopment of a new service or
a new program? Understanding thewhy will help you be able to
choose the right type of debtfor your needs. When it comes to
taking on debt, not all debt iscreated equal. Lines of credit
(06:08):
can be great for short termneeds or to fund seasonal cash
flow gaps.
They're designed to be used forsurges, so you can take a little
bit of debt, pay it backquickly, and then use the line
of credit again. That line ofcredit could be just your
business credit card, where youchoose not to routinely pay off
the full balance each month andcarry a bit of a balance, pay a
(06:30):
little bit of interest on it. Orit could be something bigger,
like an actual line
of credit from a bank. But if you need
to fund longer term growth, like hiring staff
members or purchasing equipmentor investing in the development
of a new product, something likea term loan with fixed monthly
payments might be your bestoption. And if you don't have
(06:50):
access to a traditional line ofcredit, a credit card, or a term
loan, whether that's because youhaven't been in business very
long or your personal creditscore isn't all that strong or
you just don't have the revenueto support that funding, there
are other, frankly, moreexpensive debt options like
invoice factoring. And that'sbasically where a company buys
your outstanding invoices, takesa percentage of that income, and
(07:12):
then advances you the cash. Youcould think of it kind of like a
payday loan for your business.It's not a great option.
It's pretty expensive. But ifyou're really in a cash crunch,
it can be a necessary tool. Sowhen you're thinking about using
debt to fund your business,really consider what type of
funding you really need. Onceyou decide on what type of
funding you're looking for, youneed to have a clear plan for
(07:35):
how you'll repay the debtbecause this is where there's
potential to get into trouble.Some debt options have terms
that mean you'll have a hugerepayment coming quickly, and
you really need to make surethat your business can handle
servicing, meaning paying backthe debt.
So it's important that youunderstand your cash flow so
(07:55):
that you can make sure you canmeet the repayment terms of the
debt without putting too muchstrain on your business. If
you're deciding to bring on debtto create value or fund growth
in your business, it's importantto understand what the real
world potential is of thatvalue. I personally always like
to be very conservative whenestimating growth or an increase
(08:15):
in revenue, and I expect it totake way longer than I
originally think to actuallygenerate that revenue. So if you
are building out a projection,give yourself a lot of cushion.
Once you've taken on debt,monitor your financials closely
to make sure that you're ontrack with your repayment plan
so you can adjust the plan if
you need to. And if you're lucky enough to be
(08:37):
in a really great place financially right now and
you don't need additionalfunding right at this moment,
it's still something to considerputting in place. Getting a line
of credit to use when you needit is way easier when things are
going really well than when youreally need it. So one of the
unfortunate ironies of thefinancial system is that banks
(08:57):
are happy to give you money whenyou don't need it. But when you
do, it can be incrediblydifficult to access. So you
might consider getting a line ofcredit now to give you access to
a bigger cash cushion if youneed it down the road.
The ideal situation would be tohave a comfortable cash cushion
and access to
a line of credit so that
(09:17):
you have lots of flexibility to manage cash
crises or to fund growth whenyou need it. Using debt in a
thoughtful way can be one theeasiest and most accessible ways
to get some additional fundingto run your business, whether
that's for cash management or tofund growth. But it's important
to use it wisely and to have aclear plan in place. Debt isn't
(09:39):
right for every situation, whichis why I've been talking about
lots of other options liketaking investment or
crowdfunding, or in the nextepisode, we'll be talking about
using grants as funding. Butdebt is generally pretty
accessible.
It's usually one of the quickerways to access outside funding,
and it allows you to maintaindecision making power and
(09:59):
control in a way that somethinglike equity investments won't
allow. So it might be the rightchoice for you. And as long as
you use it thoughtfully, it canbe a powerful tool to help you
run a calmer business. Nexttime, we're wrapping up our
discussion of funding types witha chat about how and when you
might think about using grantsas a source of funding. So hit
(10:21):
subscribe in your favoritepodcast player so you don't miss
it.
How'd you like this episode? I'dlove to hear what you thought
about the solo format. Do youwanna see more of these? Did you
hate it? I'd love to hear yourfeedback.
Just click the link in the shownotes. You can send me an email
or leave me a voice mail, andlet me know what you think.
Popular Podcasts
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Therapy Gecko
An unlicensed lizard psychologist travels the universe talking to strangers about absolutely nothing. TO CALL THE GECKO: follow me on https://www.twitch.tv/lyleforever to get a notification for when I am taking calls. I am usually live Mondays, Wednesdays, and Fridays but lately a lot of other times too. I am a gecko.
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.