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After three (3) years of marriage and a lot of crazy financial decisions (Thank God, a Timeshare was not one of them!), Nelly and I decided at the beginning of 2017 to get our financial act together. A couple of years before, we had listened to the Total Money Makeover audiobook by Dave Ramsey and had thought to ourselves that the ideas of the book were too lofty for us, so we never took any action, we also thought we were doing “fine”.

We both worked full-time and had car loans just like average Americans and were making our payments on time so surely there was nothing to worry about. We were normal!

This year, we were sick and tired of being sick and tired so we decided to give Dave Ramsey one more listen and in 4 months we had paid $15,000 of our $25,000 debt! It’s been seven months and to date we have paid off a little over $21,000. This gave us momentum and the mindset that we can do anything we wanted to do, debt free, including starting and running a business.

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Many people today think of financing a business with loans and as much as we do not sit in judgement over them, we believe there is a better way which is, saving the money you need and build your business as income increases.We had experienced the stress of debt in our personal lives and were determined not to bring that stress into our Web Design Business. We believe running our business debt free helps us and our clients in the following ways:

  • Reduces our risk.
  • Makes us focus on sales that bring value to our clients because our expenses are low.
  • Makes us provide high quality services for a low price.
  • Forces us to figure out creative ways to accomplish things without defaulting to loans. We end up being smarter for it.

What if You Already Have Debt in Your Small Business?

The great news is that with these steps your business can be debt free:

  1. Create a Budget based on your existing revenue and expenses and stick to it.
  2. Save an Initial Emergency Fund. Depending on the size for your small business, this amount may vary, we recommend starting with $1000. This money is to provide a cushion when an emergency occurs
  3. Do a Debt Snowball This method was coined and popularized by Financial Coach Dave Ramsey in his Total Money Makeover Book. It starts with listing your debts from the smallest to largest and paying them off in that order regardless of the interest rate. You can pay a huge chunk towards the smallest debt and only pay the minimum payments on the rest of them. Once the smallest has been paid for, roll its payments into the next smallest debt. This would provide a strong, positive emotional pulse that would keep you determined to pay it all off as you see them falling off your list.
  4. Save an emergency fund of 3 – 6 months based off the expenses on of your budget and should only be used for emergencies.
  5. Christy Wright, owner of Business Boutique also suggests saving for upcoming expenses. For example, as a Web Designer, if you know your computer would need to be replaced in 3 months, start saving one third (1/3) of that money each month for 3 months, so that it can be replaced debt free.

Points to Ponder

Marc Charles in the blog Early to Rise made these important points to ponder:

  • Operating debt free is the first step in the principle of the overflowing cup.
  • You'll save because you'll never want to be in debt again
  • Savings will open doors to opportunity when times are tough.
  • Finally, your cup will overflow, and with the excess you will be generous with your team and your community.