In recent posts, I introduced the role of debt in your business and how it can be used as a powerful tool to improve your business’s effectiveness.
Early in my discussion, I talked about how our mental concepts of “good debt” and “bad debt” don’t work in a business setting. I want to be very clear about what I mean:
All debt in your business should be good debt.
I also gave a hypothetical example showing how using leverage increases the value of your business. As you take on debt, that means also taking on debt payments (which can be quite large at times). However, at the end of the day, you will still get an increased return even with those debt payments.
My warning to you is to always watch the cost of credit. “Credit at any price” is the wrong philosophy for you to have as a business owner. Bad debt for a business is considered bad when it’s not working for your specific situation. The Sources and Uses don’t match. Or the Use isn’t a productive one. Or the price is too high.
The bottom line: high-cost credit does compete with your bottom line.
Debt is a tool. When you use this tool correctly it will make you more productive.