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How to Grow Your Business Debt-Free

When your business suffers a cash flow crunch, it’s tempting to take out a business loan or line of credit to make up for the shortfall. But is that the smartest move? Some experts say no. Their reasons explode the four biggest myths about business debt.

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Myth #1: Your business needs a line of credit to cover fluctuations in cash flow. The number-one cause of business failure is poor cash flow, according to best-selling author and radio host Dave Ramsey. A sudden drop in demand, a seasonal change, or a shift in the marketplace can wreak havoc on your cash flow and make it difficult to grow your business. But good accounting and budgeting practices, including forecasting your expenditures and retaining a portion of your earnings, can even out the ebbs and flows of your cash flow. In many cases, proper planning in advance can keep you ready for down times – and keep you out of debt.   Myth #2: Your business needs credit to make large purchases. In order to grow your business, you often have to make improvements that cost many thousands of dollars. Expanding your facilities, buying real estate, hiring more staff, purchasing expensive equipment that will eventually be depreciated – any of these big-ticket items can leave you with a high level of taxable income but not much cash to cover expenses. But there are alternatives. You can outsource to other providers, rent what you need, or buy used instead of new. Myth #3: Business debt is separate from personal debt. Many business owners are eager to take on business debt because they believe that they aren’t personally liable. Often, they’re wrong.

  • Sole proprietorships, “DBA” businesses and independent contractors are personally liable for every penny of debt.
  • In a partnership, each partner is personally liable for 100% of the debts owed by the business. That means that a creditor can take all of your personal assets to pay off a debt, including the portion of the debt owed by a partner.
  • If your business is a corporation or LLC, you’re theoretically protected from business debts. But in practice, you will be held liable if you’ve ever signed a personal guarantee, offered your property as collateral, used a credit card or personal loan to fund the business, or signed a contract in your own name (even if it was due to a supplier’s typo).
  • Finally, if a business doesn’t pay the taxes withheld from employee paychecks, the business owner is always personally liable, no matter how the business is organized.

In other words, as a business owner, you may be personally liable for business debts, even if you think you’re protected. Any business loan or line of credit could put you in a financially dangerous position.   Myth #4: Your business must have debt to be successful. Nothing could be further from the truth. In fact, some of the most successful businesses in the world are run without any kind of debt at all. Numerous Fortune 500 companies have zero debt, including Apple, Starbucks, Amazon, and Mattel Toys, according to CNBC News. Believe it or not, MasterCard and American Express don’t have any debt, either. Should that tell you something?   AR factoring: the smart alternative to business debt. If you need to make a large purchase or cover a shortfall in cash flow, and your savings won’t make up the difference, there are smart alternatives to taking on debt. Chances are, your business is already sitting on a gold mine of unpaid invoices. You can free up the money you need to keep your business running smoothly by getting cash out of those unpaid invoices through AR factoring. Remember, the goal of your business is to have positive cash flow, not to take on debt. Find out if AR factoring is right for your business.

Submit your info below to get your FREE Report on your GROWING your business debt-free.

Diversified Funding Services was founded in 1998 by Mark Little with the mission to provide businesses the opportunity to obtain critically needed cash flow for their companies with Account Receivables financing, traditionally known as Factoring.

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Diversified Funding Services, Inc
125 Habersham Drive / Suite C
Fayetteville, GA 30214
Toll Free: (888) 603-0055
Phone: (770) 603-0055
Fax: (770) 603-9823