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Don’t want to run your business in debt? You don’t have to. Our special guest Chris Hogan, author and Dave Ramsey personality for Entreleadership, explains how and why you should run your business debt free. Hogan talks about why debt is a thief, how to deal with emergencies and big expenses, and creating a cushion for peace of mind.
We also bring in Infusionsoft VP of comptroller Scott Stagg to give his perspective on debt and small business finance.
Dusey Van Dusen: Hello, listeners, and welcome to the Small Business Success podcast. I am Dusey Van Dusen, one of our producers here, and we have a very special guest with us today, Chris Hogan, the author and Dave Ramsey personality. How's it going, Chris?
Chris Hogan: I'm doing great, guys. Thank you for having me.
Dusey Van Dusen: Absolutely. Now, Chris, we're bringing him on for you because he has a background on money management and leadership training, and maybe in just a moment I'll have you get started, just tell us a little bit about yourself. But I also want to let you guys know about our other very special guest, Scott Stagg, who is our controller here at Infusionsoft. How's it going, Scott?
Scott Stagg: Good. How's everybody doing?
Dusey Van Dusen: Fantastic. So thanks for joining us. Scott is gonna add some insight into our conversation today, and, you know, today we're gonna be talking about finance and running your business debt free, but first, Chris, just tell us a little bit about who you are, what you do.
Chris Hogan: Sure, sure. Well, I'm an author and speaker. I've had the privilege of being on Dave's team for 11 years now. So I travel around the country speaking on money business and leadership, have had the opportunity to plug in with EntreLeadership and help to train leaders all around the country over the last eight years. And so it's a – it's a true pleasure. I love equipping people to go out and make results for themselves and their business.
Dusey Van Dusen: Fantastic.
Scott Stagg: Awesome.
Dusey Van Dusen: Yes, that is a – that is definitely a rewarding place to be, so that's great. We're so happy to have you on. So let's just dive right into it. Like, what is – when we talk about running, you know, your business debt free, I guess why is that important? Why is that a thing that you champion?
Chris Hogan: Well, it's one of those things that I think business is tough enough, right? You're out there trying to battle against other – your competition, you're trying to really further the cause of your service or your product. And the one thing you don't want to do is add something in that's gonna make it more difficult. You don't want to add challenge or risk, and I think that's what debt ends up doing.
It really changes the whole focus of your business, it can change your mindset, and it can impact how you serve other people. And so while, you know, establishing a business debt-free, yes, is it possible? You better believe it is. But for people that are out there listening, if their business does have some debt, what I want them to do is have this mindset to understand debt is not a tool, debt is actually a thief.
Dusey Van Dusen: Okay, that's – yeah, that's – a lot of people definitely think of it as a tool. So, like, what – when you say debt is a thief, I don't know, maybe you can expand on that a little bit. What does it – what does it do to your business?
Chris Hogan: Yeah. Well, you know, I'm a former banker too, guys. So, you know, I'm one of those people that was giving loans to businesses and to individuals long before joining Dave. But I think when you start to look at it, anytime your revenue is tied up in something that just takes from you without giving, that's a negative. And when you start to really step back and look at what debt is, I give people a Ph.D. in economics in this way. If you pay interest, you're being penalized.
If you earn interest, you're being rewarded. And so any time you have a loan, in your business or even in your personal life, if you're paying interest, you're being penalized. That's not a good thing for your financial future.
Dusey Van Dusen: Right, Chris. And I – you know, I agree. I think that, you know, debt is certainly something that's very – you know, can be very dragging on a business. And I've – you know, my experience is I've seen a lot of companies that have really suffered because of that. But it is – it is a difficult thing, and, you know, what do you say to people that are getting into business, that, you know, that have that, that see that maybe as one of their best options, to really start to invest in capital and really invest in, you know, this great idea that they have? You know, how do you – how do you avoid that temptation of going into debt?
Chris Hogan: Yeah, that's a great question. I think it's this mindset that typically whenever we're starting out or we're wanting to even look at expanding a business, we have this vision in our head of what it needs to look like.
And oftentimes, that vision is a little bit grander than it really has to be. When if you look at it, and you start to take some smaller steps, start to save up to be able to do that expansion or to start out, you can start your business small and then grow it as you have the revenue to be able to do that.
Dusey Van Dusen: You know, I was – we've got a person here by the name of Dan Ralphs, and his position here is Dream Manager. And he helps all of us kind of dream, dream big and, you know, try to do more than we can. It was interesting, we were talking about the different types of dreamers out there, and the type of dreamer that I am is that I can see – I can see the dream that I want to go get to, but I'm very impatient to get there. So I can definitely identify with, all right, I want my business to be like this, I can have this many employees, I'm like, I want to start advertising here, here, and here all right away. So I can definitely identify with that, with having a vision that's maybe a few too steps – a few too many steps far away for me to implement right now.
Scott Stagg: Right. And Chris, what about, you know, a situation where you've got a – you know, you're looking at something that's a very high growth opportunity that, you know, might not be a long lasting thing. It's kind of a fad product that, you know, you may want to jump into and really see if it takes off. But knowing that, you know, it might be a couple of years before you exit that strategy, would you – would you still kind of stay the course on that and take it slow, or would there be some situations where you might say, you know, gosh, maybe it does make sense to take on a little debt to get this off the ground?
Chris Hogan: Yeah, I can tell you having coached people on multiple sides of that, for me personally, I'm only gonna ever move at the speed of cash. And what I mean by that is it doesn't matter how good the opportunity appears, how shiny it might be, if I don't have the money, then I'm not doing it. And I only say that because I learned my lesson the hard way. This was, you know, long before Dave, where, you know, trying to move really fast.
And what I ended up doing was I moved right into debt, and I moved myself in a position to then take multiple years to kind of dig out. So I would say this. While you understand you may miss out on some opportunities, you're putting yourself in a better situation if you only move at the speed of cash that you have on hand.
Scott Stagg: Sure.
Dusey Van Dusen: Cool, fantastic.
Scott Stagg: Yeah, that makes sense.
Dusey Van Dusen: So we've got a few different points here that are some common traps that are keeping small businesses from growing that you sent us here, and I'd love to go over each one. And the first one is live below your means. So maybe you can talk to us a little bit about that.
Chris Hogan: Yeah. What I mean by that is just really have an understanding of the income you have coming in on the personal side and the revenue you have coming out on the business. And oftentimes what I've seen is either people are either dreaming or they're not aware of what's going on financially, and they put themselves in a position where they never are making enough. And so have this mindset that's baseline of what does it take for you to keep the doors open on your business. You know, what is it you need to have?
Have an understanding of that number, and make sure that your pipeline and everything that you do keeps you above that area. That will allow you to kind of put yourself in a position to build some cushion in your business.
Dusey Van Dusen: Fantastic.
Scott Stagg: Right.
Dusey Van Dusen: So Scott, do you have any thoughts around that, on like, figuring out what that number is, where you might point people to get started on that?
Scott Stagg: Yeah, I think, you know, there's a lot of things that you need to consider, as Chris stated, and it is – it's a balancing act, right, where there's – there's a lot of, you know, very difficult decisions that you might need to make. I think it is – you know, Chris brings up a good point, of living below your means and that's a difficult thing to do. You know, it's easy to say that, but I think in reality, that's a difficult concept for a lot of people to grasp. And I think as, you know, as a small business owner, I think really, you know, setting a budget and living to that, and not allowing it to get out of control. You know, I've seen several companies back in the early 2000s in kind of the dot com phase that, you know –
had great visions of being successful and really came out of the gate spending a lot of money, got in way over their heads, and within a year or two, they were out of business, and I'm sure, you know, Chris has seen a lot of that in his experience as well.
Chris Hogan: Yeah, it really is. It's amazing. And I think it's – oftentimes, you know, everyone that starts a business has a plan of being successful. That's the deal.
Scott Stagg: Right.
Chris Hogan: And what you don't want to do is allow your lifestyle to really get in the way of that, where you're not experiencing the surplus or the opportunity. And so you're absolutely right, my friend. Having that understanding of your budget, what does it take for us to keep the doors open is absolutely crucial. And again, don't feel like you can delegate that to your bookkeeper. Their job is to help you with the numbers. You as the business owner have to be accountable for the numbers.
Dusey Van Dusen: Fantastic.
Scott Stagg: Yeah.
Dusey Van Dusen: Yeah.
Scott Stagg: Yeah, and I think it's really, you know, setting the vision, knowing what that – that strategic plan is, and then executing towards that.
A lot of that, like I said, is budgeting, forecasting, really living within your means, and you know, even at Infusionsoft, a lot of things that we've done, we've really tried to focus on spending our money wisely. And you know, really focusing on those objective and those strategies that are going to contribute to the business, but cutting out a lot of the excess that we really don't need.
Chris Hogan: Yeah, and that's a very mature move. Really understanding if we're gonna spend the money, what's the ROI on this thing, right?
Scott Stagg: Right. Yeah.
Chris Hogan: What's the return on investment, and – and when can we expect to see that return? And I think going into it, with your mindset in that way, it does make you be – to be very accountable for what it is you're doing, but also understanding if we spend money here, then we don't have it to spend elsewhere.
Dusey Van Dusen: You both talked about having a plan, and that's the next point that I wanted to hit. So maybe we can elaborate a little bit on, like, the types of plans, what – you know, where somebody should get started on having a financial plan for their business.
Chris Hogan: Well, I think, you know, the first one hopefully, anyone that's started, they've done a business plan. And in that business plan, they have an understanding of the competition, you know, their marketing structure, their process, things of that nature. That's the first plan that I think every business needs to have. But then next is you start to get into the financial side, of understanding, okay, what is it gonna take for us to keep the doors open? What are our fixed expenses? What are the variable expenses out there that could fluctuate? And then start to really understand those numbers are gonna have to drive your production. That's what you have to bring in to keep yourself, you know, on that positive – positive trajectory.
Dusey Van Dusen: Cool.
Scott Stagg: Yeah. Yeah, I think it really is, you know, understanding – understanding the market. You know, what is the product that you're going to be selling or the service, getting that – that pricing figured out, and then, you know, setting up what that – as Chris said, what that – what it's going to take to support that, what expenses are you going to incur, and make sure that you're not getting upside down on that and, you know, don't have a path to – to move out forward.
Dusey Van Dusen: Absolutely. So moving on, the next point that we've got here, number three is debt is not your friend. So we mentioned a little bit, you mentioned how debt is a thief and how it – you know, it's taking you – if you're on the wrong side of debt, that it's really slowing down your business growth. So maybe we can dive into some detail here on your thoughts around that.
Chris Hogan: Well, I think the biggest thing that I see debt, outside of it being a thief, is that it brings risk. It add risks to your business formula. And so if you take on that credit line or whatever it is, now regardless of how your business is doing, you have an obligation each and every month to then pay on that debt. And so, you know, debt doesn't care that business has slowed down or that it's not peak season. Uh, debt just takes. And so when people start to look at that through that lens and they understand that, it – it magnifies risk, but it also will shine the light on any kind of mistake that you make.
A mistake with debt, you get a constant reminder each and every month by making that payment.
Dusey Van Dusen: Hey, Chris, and what are your thoughts on, you know, as an example, you know, going into debt to acquire a piece of equipment that is critical to your manufacture – let's say you're a small manufacturing company, critical to that manufacturing process, and you've worked in to the analysis of that that your return on that investment is going to, you know, be able to service that debt? What are your thoughts on that?
Chris Hogan: Yeah. Well, you know, having coached people in that scenario, it's one of those things our first mindset always goes to I've got to take on debt to buy that equipment. But I would encourage some different thought. Number one, is it a piece of equipment that you could rent? Is it something that you might be able to outsource to someone? Or third, is it something that you could buy used?
And I know walking through that, no one ever likes to hear a response that requires more homework.
Scott Stagg: Right. Yeah, exactly. I want this to be easy.
Chris Hogan: It's one of those things, I guess, having talked to enough business owners that feel the sting of making that – that big purchase with debt and now they're having to make that payment. I've had so many people tell me if I could go back and do it over again, and I think when you hear that statement enough, and even myself being able to say if I could go back and do it over again, I would do some things different. And so whenever you utilize either renting that piece of equipment or outsourcing it or even buying it used, one of those things that allows you to do it is to not feel regret later, if things move in a different direction.
Scott Stagg: And do you, Chris, look at – 'cause renting is in a lot of ways almost considered similar to buying. You still have that monthly obligation that you need to pay. There's probably some form of, you know, interest calculated into that payment structure. What do you tell people about that? Is renting the better option than – than buying maybe a used piece of equipment, or –
Chris Hogan: Well, I think it would depend on the piece of equipment, and also what it's gonna be used for. Are we talking about something that's a seasonal business, for example?
Scott Stagg: Right.
Chris Hogan: If it's seasonal and it's gonna be big in the fall, then I think renting, you could cost justify that. If it's something you could use year round, now beginning to look for that to buy used, and understanding that this piece of equipment is also earning me money each and every week or each and every month. And so I would kind of assimilate that to renting a home versus buying a home. There is no problem with renting. Renting allows you to buy time until you can save up to be able to buy a home the right way. And so I would say the same analogy is true for that piece of equipment.
Dusey Van Dusen: You know, it's interesting, when I first got into video production, my assumption was that, like, I'm gonna be using these cameras all the time, so I'm gonna of course have to buy this stuff. And as I started to make more connections in the industry, I found out that all of the professionals rent. All of the pros rent all the time.
And I still – it's still hard for me to be like, oh, I guess we should just rent that. Like, I want that, I want that.
Scott Stagg: Yeah, like I want to own that. I want that nice camera.
Chris Hogan: Well, and especially with equipment. I mean, you could – you know. they're gonna come out with another model either every few years, and it really makes what you have, you know, either outdated or obsolete. And so it's one of those things where it does require a mind shift, of really looking at and understanding I want my business to be nimble, I don't want my business to be stuck. And if you have debt, you tend to put yourself more in the stuck position than in the nimble position.
Dusey Van Dusen: Okay. So at this point, let's say, you know, we've been going alone, we've been running our business debt free, and then some sort of emergency comes. There's some – I'm – there's a million things that it could be, but there's something that puts you behind, and like, you're considering going into debt for it. What – are there – what would you advise for people to be prepared for that or people that are kind of caught in that situation?
Chris Hogan: Well, I would say twofold. If you have someone that is in business and they're running it and they're hit with an emergency, you know, they can tend to feel like they're stuck, they're stuck between a rock and a hard place. And, you know, that's where I would encourage that individual to kind of really step back, let's see this thing. Is it an emergency or is it lack of planning, right? There's a big, big difference. If it's a true emergency, then we need to look and understand how can we shift some things to be able to take care of that, or how do we begin to take care of it over a series of months. If it's a new business, what I would say is put yourself in a position to where you can have some retained earnings, i.e., an emergency fund in your business, and that's something you look at and you can strive toward. The great first place to start is one month of expenses and retained earnings, and that's something they could put in a money market account or to keep it liquid, so they could access it if the need were to arise.
Scott Stagg: Right. And I would also say that, you know, in addition to that, I mean, record keeping is critical, right? You really need to understand what the financial condition, what are your inflows, what are your outflows.
Otherwise, you know, you're not going to be able to create that emergency fund, or you're not going to – if you don't really have a clear understanding of how your business works and what it's producing, it makes it extremely difficult to know whether or not you're getting upside down or not.
Chris Hogan: You're absolutely right, and for example, I was working with a gentleman who was contracting with the federal government, just starting out with it, right? And so talking to him, I was able to give him some expertise and some guidance, because in his mind, the receivables, he thought things were gonna be on a 30 day lag. And I laughed and wanted to give him a hug. I'm like, listen, my friend, you're dealing with the federal government. Nothing happens fast.
Dusey Van Dusen: Right, yeah. Yeah.
Chris Hogan: You could be looking at a 120 day lag. And so for him, you know, it was this mind boggling kind of aspect. And so he would eventually get paid, but that lag time, had he not known that on the front end, could have truly caused him a lot of hardship and heartache in the process.
Scott Stagg: Absolutely. Yep, for sure.
Dusey Van Dusen: Cool. So changing gears a little bit from that topic, another note that you sent was that diversification is key, and I would love to hear you kind of walk us through, I mean, what – what you think of when you're saying, okay, you need to keep your investments diverse.
Chris Hogan: Yeah. Well, I would say twofold, really. From a diversification from a business aspect, I would say you always want to be keeping your eyes open for opportunities, right, to be able to look to how can you serve your existing customers, how can I go deeper in that relationship. And so I think in your product line or your service line, obviously you want to understand kind of where is the next opportunity in your business. On the investing side of things, obviously I want business owners out there to not have to rely on the sale of their business for their financial future. And so with that, what I'm encouraging them to do is to make sure they're understanding how are they saving for their future for themselves. Are they utilizing a solo 401(k) or a SEP if they're self-employed?
They have vehicles out there where they're able to put money aside for their financial future. And so just would encourage them to sit down with an investment professional, make sure they're having a game plan for themselves, not just for today, but also for tomorrow.
Scott Stagg: Right. And Chris, what about, you know, we've been talking a lot about debt. What are your feelings on, like, you know, getting an equity investor into a company?
Chris Hogan: Yeah, I have – you know, having walked through this personally, I would call that, that equity investor, you know, what you have to call it, and what that is, is an obligation.
Scott Stagg: Right.
Chris Hogan: Which, you know, again I would call obligation debt. I would tell people to go into it with their eyes wide open, know full well what you're dealing with, what are the repay expectations. You know, I would prefer people to keep control of things themselves and go low and slow and make sure they own it. If they're going to do that, they need to really be aware, get good legal counsel so you can understand who you're dealing with.
Having seen a lot of these partnerships get sideways, because someone ends up working harder than someone else, or having these obligations over your head, all those things can impact people on a deeper level.
Scott Stagg: Yep.
Dusey Van Dusen: So I've got one last question for you before we wrap up here, and I'm gonna take a moment, I'm gonna put on my Clate Mask hat, or I guess it should be my Clate mask, right? So I'm going to – sorry, everybody out there, I had to.
Dusey Van Dusen: So I – there's a concept that I've heard him speak about a little bit, and I would love to get your take on it. And he was talking about, you know, a moment in the business when, you know, there's – you're in the thick of it, you're down, you know, working in your business, you feel like you don't have time to be working on your business, and I know that he is a fan of getting a line of credit, that's something that you don't have to – you know, it can be less of an obligation than just going straight up for a loan, and giving yourself a little bit of space to back up to know that things are gonna be working okay for a little while, so that you can work on your business.
So I'm really curious to kind of hear your counterpoint to that, and how you would go about making sure that you've got the space to be working on your business and not having to be in the thick of it every moment.
Chris Hogan: Well, what I would say is this. I mean, any – you know, anybody that's trying to work on their business and not in it, what they understand, the clarity of mind is required. Each person can do it how they want. If I'm guiding someone or helping people on the front end, what I would tell them is, you know, that cushion that they're talking about is peace of mind. And so what I would want to do is to begin to establish that cushion in my business starting out, making sure that I'm putting some money aside, some retained earnings, to where I can become my own credit line, without having to rely on a bank. And so that to me would be imperative. That's the route I would take, and that's how I would guide anybody I was coaching.
Dusey Van Dusen: Fantastic. Thank you very much.
Scott Stagg: Yeah.
Dusey Van Dusen: So our special guest, again, was Chris Hogan, from Dave Ramsey – from EntreLeadership, I should say, with Dave Ramsey, and thank you so much for your time here. Do you have any resources that you would like to point our listeners to, where they can keep learning about you, about running your business debt-free, about EntreLeadership, about anything like that?
Chris Hogan: Yeah. I would say, you know, EntreLeadership.com is gonna be an incredible resource for people, where they have an opportunity to listen to the podcast, where we interview all types of business leaders and owners, people that are making things happen all around the country. They can connect with me at Chris Hogan 360.com. That's also where I have information on there about the book, but also some leadership articles as well. I would just encourage your listeners out there to constantly think like a sponge, meaning soak in information. You know, talk to people that are doing some things, talk to some movers and shakers out there, that are in your community or beyond, because we're all limited by our knowledge, so we have to keep growing.
Dusey Van Dusen: Fantastic.
Scott Stagg: That was awesome.
Dusey Van Dusen: And you – and you host on that podcast at least occasionally, right?
Chris Hogan: I – I used to. I joined now. Ken Coleman is the host, and he took it over a couple years ago. Does a fantastic job talking to all types of leaders out there. But I pop in and cause some – some drama every once in a while.
Scott Stagg: Nice. That's great.
Dusey Van Dusen: Sounds good. I'm always up for some drama, so I'll make sure to find you over there.
Chris Hogan: Yes.
Scott Stagg: Yeah, for sure.
Dusey Van Dusen: Fantastic. Thank you very much. And you can also text Debt Free Guide to the phone number 44222, and you will get EntreLeaders guide to running your small business debt-free, and that is a fantastic resource to get you started on some of these concepts that we've been talking about today. Also thank you to Scott Stagg, our controller here at Infusionsoft. Thank you very much for spending some time with us.
Scott Stagg: Absolutely, this was great. Chris, it was nice to meet you.
Chris Hogan: You too, my friend.
Dusey Van Dusen: And this has been another episode with the Small Business Success podcast.
Do you have a question that you want us or an expert to answer? If you have questions about your small business, submit them at Small Business Success.com/questions.