Webmasters and Debt: One perspective
 

Using debt as a constructive tool in growing your online business

by Gene aka $5 Submissions http://www.webmasterlabor.com


From an early age, I have been trained by my parents that debt is bad. The most frequent justification for this belief is that debt reduces your total net worth and your financial flexibility. As an online entrepeneur, I've found that while my parents' advice is 100% correct in regards to personal finance, a different way of conceptualizing debt is needed when it comes to business finance.

Debt, like any other tool, can be used negatively or positively depending on the circumstance you find yourself in using it. When you are growing your online business, debt may not be a purely negative thing since it allows you to leverage existing assets and maximize your ability to grow your business quickly.
Of course, there are definite traps to avoid when using debt as a tool to grow your business.

Trap #1 Undisciplined use of Debt

If you treat your credit card as a piggy bank which you frequently dip into for the smallest and most frequent expenses your business faces, you may easily find yourself so deep in debt that whatever income your business generates becomes immaterial.

Treat your credit card as a tool to pay for STRATEGIC expenses. These expenses should have the very real possibility of generating revenues or increasing efficiency which generates revenue.

Create a hierarchy in your decision making before choosing to use debt. Put strategic expenses at the top and non-strategic/non essential expenses at the bottom. Spend credit resources based on this hierarchy.

Trap #2 Untimely use of Debt

Just as there's a hierarchy in the THINGS you wish to buy, you should employ a hierarchy in the TIMING of your purchases. Debt should only be employed when revenue closely appears to be unable to cover your expenses. However, if it's still too early and revenue might pick up, hold off on whipping out that credit card.

Similarly, use debt for business EXPANSION only when it appears that revenue is ramping up and can be accellerated with strategic reinvestment into your business via debt. If revenue is anemic, make sure to fine tune your business model and increase revenue before you resort to using credit.

Trap #3 Addiction to Credit

Sometimes even businesses with the best potential and significant revenues fail because the owner has failed to get out of the "strategic debt usage" mindset. Debt is only a tool. Don't be afraid to stop using the tool and start using cash when you are able to. Sometimes, its hard to shake a mental habit. However, your mental attitude must change and conform to your material condition--once you have a cashflow, start using that cash. Being stuck in "survival" mode while your company is actually flourishing may mean the eventual death of your company due to ineffective management of assets.

(c) 2004 WebmasterLabor.Com This article is free. Feel free to publish in original unmodified form for your webmaster newsletters, resource sites, chatboards, and email groups.

One explanation for the failure of many dot bomb companies back in the late 90's is due to their failure to use the hierarchies mentioned in this article. Of course, most were funded by investor money instead of debt. And most focused on online content/services that had unproven revenue generating potential. Regardless, the mindsets were there and the symptoms were there.

Indeed, it could be a boon to adult webmasters that most of us don't have investors and are used to relying on personal resources for financing. This makes many of us keen on increasing efficiency and return on investment.

Very good article.

Nice post Gene! :glugglug

Nice post
looking at costs is so important and credit is a cost
credits have to be used wisely

If you guys have any advice, comments, feedback, experiences with using debt to grow your business, please post here.

Cool, thanks! :thumbsup

bump

Very Good Article :thumbsup

nice post, doesnt seem to apply to my debt tho and i was excited, lol

any tips for a guy behind on electric, phone and rent? :Graucho

Personal debt got you down, I would suggest the following:

1) Consolidate your debt -- call all your lenders and tell them, you'd like to consolidate or it may be BK... Faced with that choice, they'll take consolidation

2) cut up all credit cards that are nonessential

3) start charting your expenses and start cutting nonessential items

Good to see a nice informative post :) Thanks mate.

great thread and article :)

cool wasnt expecting any serious replies.

no credit cards here, so i got that goin for me
and i started a new job so im gettin back in action

few more weeks and i can afford your services :)

$5 Dollah hit me up tomarrow I wanna make ya a banner for my Ialien.com pre promo openning bro;)
Ya contribute some great shit to the boards;)

This eyeball does not forget:thumbsup
Nice writing there.

ICQ: 78943384

that's why i only use my debit cards.... the credit cards are store far far away....

Thanks, AlienQ. Will do!

ive heard of people doin so bad with credit cards that they actually freeze them in ziplock bags in their freezer.. just to give them time to think about a purchase and have second thoughts..

now thats insane.

We were tricked! Now we owe him for that article!

:thumbsup

ccards aren't all bad. i love my air miles :)

http://catalog.com/uvlight/images/airmiles.gif

That's a lot of miles! Nice!

:1orglaugh

Nice

:thumbsup :thumbsup

a good read for sure.

Sounds like bits and peices of advice from rich dad, poor dad.

<img src=http://thespacebulldog.com/Pics/chicken.gif> :eyecrazy

Very good point! :thumbsup

Thanks, Nathan!

personally I'm all about profit, expansion and the future. Investors and credit all want to take a part of the pie.

Vehicles and equipment are debt free, and I owe zip except monthly operating expenses. Puts more $$$ in my pocket and for expansion.

.Nice one.It would be nice to have some equally good info on webmasters dealing without outstanding debts that they are owed e.g. from sponsors reluctant to pay.

ICQ me and I'll conduct an interview with you to research this topic and I'll write an article on it.

Just let me know.

nice post:) thanks!

nice read. I use credit cards in moderation. I think the people who say "I'll never use them" are living in yesterdays world. Credit cards have many advantages the only thing I try and keep in mind.. is have a wad of cash in your pocket and your credit card. When you spend money on the credit card consider your wad getting smaller. If my pocket is empty with no cash.. my credit card does not get used.

Guys, the archive for these articles are located at http://www.webmasterlabor.com/articles/

great read, thanks :thumbsup

I read rich dad poor dad. It's main advice is that wealth is more of an attitude than anything else. An attitude that allows people to accumulate assets instead of liabilities. I dug the book.

Debt is not all bad. You just have to use it wisely. I know a guy who started his Active X empire with a credit card limit of $1000. It can be done. Thanks Jebuz for elance.com :thumbsup

You have great articles!

Keep them coming.

Thanks, Jason!

i was always told that if i cant afford to pay for it in cash, then dont buy it!

This works great for personal stuff but may not apply to business type expenses since lots of them may be a bit more costly and not everyone has that much cash laying around.

Another great way to think is why should you have to pay interest? Fuck these companies, dont pay them shit! If you use your CC then pay it off the next month in full to avoid interest

seams to work for me

precisely what i do.

Can I have a debit investment from You? :)

LOL, thanks... I think ;)