Paying off debt

[Larry]

A few years ago I read a book...."Richest Man in Babylon" by George S. Calson.  A classic fable about making and accumulating money.  Wish I had read it when I was 18.  If I had, I would be living on my own paradise island and drinking fruity drinks everyday. :D
 

[Southside]

For sure with the reality we face today you have two choices.  1) Work for someone else and let them decide what you are worth or 2) Risk what you have and what the future holds, but for sure find a way to force multiply your earnings.  I have gone both ways and for almost 20 years now selected option two and it's why we diversified and frankly why we farm.  Those hens, cattle, and fields go to work for me 7 days a week while I make money on the sawmill side of the business.  Yes, I have to manage things, and there are expenses to deal with, but my labor is force multiplied as a result of their input.  

Smart debt is unavoidable if you are running a business at my level.  There is no trust fund to dive into, no sugar momma to foot the bill, you need to keep expanding, so equipment, land, etc must be obtained and that means debt.  At the end of the day it's all about what you keep, not what you make.  

[YellowHammer]

One of the reasons we have a sawmill business is to get out of personal debt as well as business debt, although we consider them two separator things.

Personal debt is the debt that keeps me up at night, house, land, vehicles, etc.  We do everything to stay out of personal debt.

Business debt is the debt we incur to maintain or expand our business. It is a tool, like Cedarman says, and when a tool is used positively to get another tool, such as a new piece of machinery, then a business based decision must be made that the piece of equipment will more than pay for itself with increased profits.  No machine gets a free ride, and the portion of the profits form the machine goes into paying off it's loan, especially until it gets to a selling value where I can liquidate or sell the tool for enough money to pay off the debt.  At that point, we are at a financial break even point, and the pressure is off.  So using loans to increase business debt temporarily to further increases production, sales and net income, is a good decision.

A good example is a WoodMizer LT-70 sawmill.  We bought it because it would increase production and increase profit, which it immediately did.  So the increase in profit went to make the monthly payment, plus a little.  After a short time, the debt incurred was reduced where if we got in trouble, we could sell the mill to cover the loan.  So at that point, there is, in essence, no debt as the loan is covered.  However, as we kept paying off the mill, and it is fully paid now, then we have a positive value asset that we could sell and make money.  So for a business, debt isn't really the value of the payment, it should be offset by the selling value of the piece of equipment. At that point, there is no debt.

[Cedarman]

When you get a loan most banks want a financial statement.  On the statement is your net worth.
If you do one of these periodically, you should hope your net worth goes up if your business is actually making money.  You must be realistic about the actual value of your toys and tools, land and house, and vehicles. If you are paying kids through college, then your net worth may go down as the investment in education will go to your kids benefit.
Anyway, I like to see my net worth go up.  Then I know we are making money.

[aigheadish]

At that point, we are at a financial break even point, and the pressure is off.

I've played the stock market this way. I'm not terribly knowledgeable about stocks, so I play it with money I know I can lose. I pick companies that intrigue me in some way or trends that I see that look like they could be money makers. I also like to sit on stocks and watch them hopefully increase in value (and dividends!). That being said I've made a few sales that have paid for the rest of the investments, so while there isn't a giant pile of money there what is there is all free money, so I don't freak out too much if/when the market takes a dump. 

I play roulette the same way. Take a hundred bucks I can afford to lose, hopefully hit some, put the hundred bucks back in my pocket and play with the winnings. It doesn't work every time but it has worked a few, then I don't get too mad when I'm up 500 then go on an unlucky streak. 

[YellowHammer]

I agree, analyzed net worth is the proof off the pudding.  Increasing net worth is the target, although there will be some ups and downs, the running average should be positive.

[Peter Drouin]

I agree, debt is a tool. I'm talking to nyle. A200 is 30,000 plus.
Plug and go.
I could write a ck for it but, I think I will take a loan of half. Maybe 
Will see.
Going to see if they del too. 

[customsawyer]

Years ago when I was younger (brave and a little nuts) I had the forestry business. One thing it taught me was the difference between owing $100,000.00 and owing $1,000,000.00. When you owe a 100K you lay awake at night worrying  about paying it off. When you owe over a million your banker lays awake at night worrying how you're going to pay it off. This is a little on the joking side of things but extremely accurate.  
I'm with the others in that it is a tool. Just like a credit card. Use it to your benefit and go on with life. At this point in my business I am only willing to finance a piece of equipment if it will pay for itself within 2 years. I know that is a little strict but it is one of the rules I use. I don't care if it makes me a dime in the first two years as long as it doesn't cost me. I also like it to make my life easier.  

[Cedarman]

One of the reasons I like to go to Logging and Sawmill shows is to learn about new stuff and new ways of doing things.  I am always thinking of how I can adapt or not adapt the stuff I see to make my business easier or more profitable.
Just going to Jake's I saw him squirt some stuff on the planer table to make it a lot slicker.  We have always used wax.  So I did a little research and came up with a product that Swamp Donkey uses.  Also am going to try Biolube.  They sent a free quart for me to try.
Will see what the jury says in a few days.
It is not always invest cash into a business, you can invest time.  Spent 3 1/2 days going to Jake's.  Time and money well spent. Just the fun was worth it.  But learning can make you some good bucks too.

[Peter Drouin]

I pick up things just watching the vetoes. 

[stavebuyer]

Debt is always a gamble unless you have the cash to pay in full but can borrow on better terms from the bank than using your own funds. Often the best deals come to those who have cash to pay and they may not even be a direct line to your business.

It's all well and good to flow chart your P&L until something like Covid, Ukraine, election of some whacko's who think your business is the sole cause of climate change or social injustice lays waste to your plans.

The new loader, kiln, edger or whatever purchased with borrowed funds suddenly becomes an anchor if the mill burns and can't be replaced for 2 years.

Having said all that most likely you have to take some gambles to ever get a foothold. If you have built enough equity, you may well be in the position to overcome a disaster. Keep doubling down and the odds will eventually catch up to you.

[moodnacreek]

Nothing ventured, nothing gained. Timing is everything. I never liked the description shrewd but that can be necessary to survive.

[Cedarman]

Many are the people who failed in business only to pick themselves up, start over and become wealthy. And I am sure there are many who failed in business, gave up and went to work for the "Man".  Fear of failure, disaster, the future, has kept many working for the "Man" instead of diving in .  Fear freezes some, motivates others.

[Southside]

2008 taught me a lot of lessons, I managed to survive it, and became a whole lot tougher because of it.  Survival was a case of luck - there were many bigger fish to fry so they got more focus - and tenacity, more than preemptive strategy.  Just keep swinging, and swinging, and swinging  - sooner or later you will hit the ball. 

[Resonator]

I've heard it said that someone in business who's made a million dollars and lost it, is more likely do it again. They are confident in themselves because they know it can be done.

Also poor people just make things happen. If a caveman wants brontosaurus burgers for supper, he knows he's got to go out and knock one down and drag it back to the cave.

[YellowHammer]

Martha and I have a saying that every big financial decision we ever made started out with a "What in the Heck are we about to do?"  Then we did it.  It helps with lots of research, and them lots more research, then hard work, then smart work, then using the power of money to make money.  Money is a tool, an expensive tool, but nothing more.  Using a wrench to turn a screw doesn't work very well, and using money the wrong way also doesn't work very well.

Preaching to the choir, many of the people contributing to this post have certainly been there and done that with success.  

[SawyerTed]

The old saying "It takes money to make money" is absolutely true for business.  It is difficult for a business to operate completely debt free and the advantages really aren't there to do so.  Leases, business accounts at suppliers, acquisition of machinery or equipment, installation, building expansions etc. all require the funds and the advantages of using debt to accomplish those things outweigh purchase.  It all has to be very strategically done.

On the personal side, delaying gratification of wants is the biggest factor in minimizing debt.  Fun money is too easy to get and too hard to pay back.  Interest rates on credit cards and toy loans can be overwhelming.  It is a slippery slope.

It took me along time to realize that my friends are financed to the hilt to afford the the stuff they "own" and the things they do.  A very good friend is so over extended that he barely has money to put gas in his boat for a day at the lake.  The freedom of not being personally financially extended to the limits is liberating.

[customsawyer]

Don't know why but reading this reminded me of a old saying. "The timing of a rain dance has a lot to do with the outcome." Guess what I'm trying to say is if you are going to get a loan make sure it is the right time for you or your business.