Avoid the Temptation of Short-Term Loans and Consider This Before Signing Any Agreement

Having seen too many businesses crash and burn from short-term lending, I want you to know there are other options.

Time after time, I’ve run across companies that make a rough financial patch much worse by “solving” their problems with short-term loans. Here, I’d like to modify Nike’s famous slogan and tell business owners considering taking a short-term loan to “Just Don’t Do It.”

Case in point: I received a call from a retail business recently who I consulted with about a year earlier. The company had recently taken a four-month loan with an annualized interest rate of 200 percent. They never realized the rate was that high.

The owner wanted to get an SBA loan now to consolidate his debt, but he’s not making a profit so he couldn’t get a loan. Also, he’s making a daily repayment of several hundred dollars, which puts pressure on his entire operation.

Tempting but evil.

What exactly are short-term loans? 

Short-term loans generally are easy to obtain. The loan process takes only a couple of days, and you can apply online. Borrowers don’t need extensive credit histories or even good credit scores to be approved.

The ease of securing a loan is helpful to struggling businesses because it offers increased cash flow. That might mean making payroll or paying rent if you’re otherwise stuck waiting for accounts receivable

It also might allow a business to take advantage of a short-term opportunity. Say, for example, that you’d be able to buy critical raw material for half price for a limited time. Those savings might enable you to increase your profit margins or expand your production.

But the price you’re going to pay is a high one in more ways than one.

The interest rate surely will be outrageous– triple figures aren’t out of the question– and the repayment terms will be onerous and frequent. If your business doesn’t have a regular cash flow, this can be especially problematic.

The other main problem with a short-term loan is that it can lead you into a debt cycle that you’re unable to break. It’s not uncommon for companies that take out a short-term loan to take out another one before the first one is paid off. That debt cycle can then become a death spiral.

I counsel clients not to fear debt– but it has to be the right kind of debt. That’s not a short-term loan.

A different path.

So, what should my former client have done instead of taking a short-term loan? I would have told him to forgo the loan and cut expenses.

Entrepreneurs are conditioned to be in growth mode perpetually, but no business grows in a straight line, and downturns are a part of the process. Hunkering down and even shrinking your company during stress points is a viable option, and it’s certainly better than getting stuck in a debt cycle.

Now, my client’s only slim hope is to avoid further debt and cut expenses to the bone, but it may be too late. Don’t make this same mistake yourself.

How to Maintain a Healthy Cash Flow at Your Business

Here, I break down two difficult financial decisions faced by business owners and what they should do to stay afloat.

In the same hour last week, I had two conversations with entrepreneurs at very different stages of their ventures. And while their specific issues were very different, the theme of how to manage and balance cash flow was the same and consistent.

In the first situation, two partners are opening a new retail business and need signage to entice traffic.Their budget allows for $10,000 of signage, but the quote for the electronic sign came in at over $20,000. The vendor then offered them their “next best thing” for $12,000. Or a competing vendor offered a wooden sign for $6,000.

The partners must decide how to allocate their money.There is a lot of uncertainty of a business that has not opened its doors yet.

As I hung up the phone and ended that conversation, the next entrepreneur had a different dilemma.They were in the process of refinancing $1,000,000 of debt and were debating between a five-year note at 6 percent interest or an SBA note at 8 percent that amortized over ten years. Their accountant had crunched the numbers and was strongly advising them to take the lower-priced note, even though their monthly payment would be $10,000 more with that option.

In both situations, the entrepreneur must look forward, and think about what is coming up over the next 12 to 36 months — and make their decisions accordingly.

For the new start-up, while they have a budget of $10,000 for a sign– if they can get a good option for $6,000 — this allows them to put some money into reserve for the unexpected. After all, early-stage forecasts rarely go to plan.

And for the more established entrepreneur– the accountant is technically right from a pure dollars and cents perspective that the shorter-term note is cheaper. But what they are not taking into consideration in that analysis is what happens if the economy flips, or business slows down dramatically. If this happens, they will regret not taking up the cash flow savings from the more extended offer.

So how do you make these decisions? My advice is always to stand on the side of the caution. For the start-up, I would encourage them to take the cheaper sign to start. If things start going gangbusters in their business, they can consider replacing it one day.

And my recommendation to the business owner who is refinancing the debt is to take the longer-term loan. In a good year, they can pay it down. And when they hit a rough spot, as will invariably happen along the way, they have the benefit of the smaller payments.

Ultimately, cash is king. Play your hand accordingly, and you will likely enjoy a long journey.

Here’s How to Determine If Your First Loyal Hires Just Aren’t Cutting it Anymore

Here’s How to Determine If Your First Loyal Hires Just Aren’t Cutting it Anymore

Building your company with a team of loyal and competent people is a critical key to success. The problem is that at some point you’ll want to take the company to the next level– and the team that you have built and love might not have the skills to take the business to the next level.

That puts you in the delicate position of not wanting to get stuck in a rut, but also not wanting to let members of the team go because of their loyalty to you. Do you fire some of those employees or move others into lesser positions while new high-caliber employees take the reins? That’s the kind of question that will keep you up at night.

If you’re starting to feel that your current team does not have the tools or know-how to push your business to the next level, you’re in No Man’s Land. You love and respect the people who surround you, but you’re just not sure they are up to the job, something I heard Doug Tatum talk about this summer. Doug is the author of No Man’s Land: Where Growing Companies Fail.

In my work, I often see these phenomena in the financing or accounting team of a company.  At some point, the company was big enough to afford a full-time bookkeeper who loyally helped keep the business organized as it grew from $1,000,000 in revenue to $10,000,000.

So now as the company tries to push to $50,000,000 and the accounting, finance and tax options are much more complex, the issue is that as hardworking and devoted as the bookkeeper is, she does not have the skill set to push the company to the next level. And this cannot only hinder growth, but it can also lead to costly and expensive mistakes as you consider new issues or opportunities.

No Man’s Land is when your previous strategies– whether that’s your first hires, original fundraising, or first brand design– no longer helps you move forward and expand. When you reflect on your own company, are you stuck in no man’s land?

If so, it’s not an easy thing to come to terms with or diagnose. One question you might want to ask yourself is if you were to build a new team today to manage your current organization, what would it look like and what skill sets would you want around the table?

Once you have this strawman in place, how does it compare to what you have today and what weaknesses have you identified? 

My best advice if you think you are in this situation don’t tackle it alone. These are tough issues to deal with in isolation. Consider approaching a mentor, business coach, or a peer group that you are involved with to talk about your concerns and build a plan to move you out of No Man’s Land.

The Evergreen Movement: A Refreshing Change in an Equity Driven Marketplace

Here’s a lesson that every entrepreneur can learn about the path less traveled.

In my work as a public speaker, I attend a lot of conferences. And the reality is, with all the trains, planes, automobiles, and hotel rooms, sometimes it all start to blur together.

Occasionally, I wake up in a new city, and I have to remind myself where I am and who I am speaking to that day.

This summer, I had a different experience. I spent two days with the members of the Tugboat Institute at their annual meeting in Sun Valley, Idaho before it was my turn to get on stage. And when I did, my opening line was “I think that you are the nicest group of people I ever met.”

This group of entrepreneurs is different from other groups; they have all signed up for a philosophy about their business called the Evergreen Movement that, in my opinion, is a breath of fresh air.

Some fundamental principles of the movement are unique. These business owners are by-passing a philosophy of flipping and selling for accepting long time horizons and staying private. These are entrepreneurs, but they are not serial entrepreneurs. They are not interested in taking their companies public or selling to private equity. They don’t plan on starting a business every five years. They think about their enterprises in time horizons of 50 or 100 years.

By the very nature of this long-term philosophy, the entrepreneurs who embrace this Evergreen Movement are purpose-driven. I found that their businesses mean more to them than the typical entrepreneur that I meet. This sense of purpose is a result of the long-term horizons that they choose.

Evergreen entrepreneurs are also not interested in rapid growth. They choose to grow slowly and steadily–because they don’t have the pressures of public or private equity investors demanding quick yields. They insist on being profitable and are happy to climb up a slow and steady path.

Many of the business owners I met were a part of multi-generational family businesses.  The long-term Evergreen philosophy encourages this approach.

A few years ago, I wrote an article about the difference between tortoise and hare entrepreneurs. I talked about the differences between the predominant culture of rapid growth and quick flips and venture capitalists, versus the slow and steady approach of building businesses for long-term value.

And what I realized after spending a few days at the Tugboat Institute is that I had never spent time surrounded by a group of proud tortoises. And this experience was refreshing. Besides the Sun Valley air, the members’ level of curiosity and desire to build meaningful long-term relationships was different from many other entrepreneurial groups I have worked with.

There is another approach to consider in building a business other than maximizing short-term value and selling quickly. You can do it the slow and steady way. You can choose the path less traveled. And if you want to find other business owners and entrepreneurs to work with who are deciding on that direction, you might want to consider learning more about the Evergreen Movement. I also found Josh Baron’s blog on multi-generational family businesses and long-term philosophies another great resource in this area.

As you think about your business and your work, do you love and feel passionate about what you do? Are you looking for the “next thing,” or are you happy with what you do and think you could be content to do it for the long term? If you’re in it for the long haul, you are fortunate (and not the norm), and learning more about the Evergreen philosophy could benefit you.

Why We Need to Be Concerned with Private Equity’s Grip on American Business

Private equity companies certainly have their place in the business world, but controlling such a large share of it is problematic.

Readers of this space and those I’ve counseled in my business dealings over the years have heard me rail often about the potential problems related to private equity investments.

However, it appears as if few are listening.

I was at the Tugboat Institute a few weeks ago when its founder, Dave Whorton, presented a startling fact cited by Douglass Tatum of University of Wisconsinand theJim Moran School of Entrepreneurship at Florida State — about 20 percent of American businesses are either directly owned by a private equity company or by a subsidiary of one. 

What’s the best deal? 

Private equity companies certainly have their place in the business world, but controlling such a large share of it is problematic.

By nature, all of these companies under private equity’s purview are highly leveraged. We all know that sometimes that is acceptable, but if the economy tanks, the company’s market changes, or some other bump in the road arises, that high leverage can be a significant impediment to continued success.

In addition, by nature, the investors will demand a very high growth curve over the next three to five years. Decisions will be made based on short-term financial metrics, with the needs of customers (not to mention employees) considered secondary, if at all.

That’s because private equity doesn’t care about the long-term future of a company. It’s akin to strip mining — extract the assets, and future consequences are damned. 

Yes, it makes money for investors (and makes money for the company for a while), but it invariably leaves the company in a weaker position than if its growth and future was carefully planned.

Complicating the issue, many companies are flipped from one round of private equity to another, which increases the pressure to increase the growth curve at the expense of future company health.

Multiple rounds of equity raise can’t possibly be good for a company, let alone the United States as a whole.

Bubbles Burst

Many in the business world seem to have short memories and assume that good times will last forever. How often have we heard people talking about the end of the economic cycles that have ruled the business world for decades upon decades?

No matter how optimistic you are, the good times will come to an end. As painful as they are, recessions have their place– they wring out inefficiencies in the market and also knock out weaker businesses. After that occurs, the economy is healthy and ready for real growth.

Remember the so-called “Great Recession” from late 2007 into the summer of 2009? That was caused by a similar bubble, albeit with real estate. Lenders got greedy, relaxed their underwriting standards, and began making home loans to people who shouldn’t have been home owners.

That house of cards collapsed.

I’m not saying a recession is around the corner, and when one does come along, there may be factors other than private equity’s extreme influence, but nothing good ever comes from lousy practice.

In other words, beware of private equity.

Knowing Your Next Move in Your Game of Business & How You’re Going to Play It Will Set You Up For Success

You should always be thinking about ering what’s next.

Do you have your next “play” in mind for your business ? If so, your next move is to decide how you are going to finance it.

When you have an investment to make in your business, what do you do? Consider these alternatives:

  1. Forgo the investment and try to get by with what you already have
  2. Pay cash
  3. Raise equity
  4. Get a loan

When it comes to making your choice, the most important thing is to think both offensively and defensively, recognize that the world (and your business world) may look a lot different a year from now.

Yes, you always should be thinking about growing your business — the philosophy about falling behind if you’re not moving ahead is true — but you should make decisions based on the possibility that things may go south, too. Remember that very few businesses grow in a straight upward line.

Consider the trade-offs

In each of the four options, there are potentially positive and negative aspects.

1. Forgo the investment and try to get by with what you already have: By sitting on your hands, you avoid taking on debt or losing control of your company, but you may miss out on opportunities. As an example, sometimes companies pass on hiring exra salespeople as they can’t afford the expense. The flipside is that they won’t experience the potential opportunities that the new sales talent could present.

2. Pay cash:  Paying cash is simple and convenient if you have it on hand. But if the world flips on you later down the line, you could find yourself in a precarious financial position.  Sometimes business owners choose to buy equipment with cash instead of financing it.  And a year later they face a cash flow crunch because something unexpected happened, and they are struggling.

3. Raise equity: As for equity, the favored method of “Shark Tank,” the idea of new partners may be exciting and could open up a whole world of possibilities. However, giving up equity in your company is potentially dicey. It’s not out of the question that you’ll clash with your new partners or even be shown the door at some point.

While “Shark Tank” likes to give updates on all their success stories, there are plenty of times where the partnerships fail miserably. I hear many cases where investors lose interest in a company they invested in — because they are not performing to their hopes and expectations.  And then the entrpreneuer is left hanging, with their dream and vision on the line.   

Finance the investment: Then there is getting a loan, my preferred method. If you can line up a low-interest SBA loan over ten years, you likely can accomplish your goals while still being able to breathe financially.

Remember that debt isn’t necessarily a bad thing. Of course, the downside of taking on debt is that no cash infusion is guaranteed to fix whatever ails your company. Also, too much debt can start a death spiral.

What I suggest is that at every junction when you think you need money, slow down and consider all of your options. On the debt options, find out how much you are able to borrow with a monthly payment that you are comfortable with. And then decide which approach is best for you.

In general, it’s smart to be at least somewhat conservative with your plans. The fear of making a move can’t paralyze you, but conserving cash where you can and having some reserve for a rainy day is always a good idea.

Growing Too Quickly Will Destroy Your Business. Here’s How to Strike the Right Pace for Success

Sorting through your growth dilemma is a critical exercise in determining your path.

How big would you like your business to be next year? How about three years from now?  Your answer, especially if you live near Silicon Valley where venture capital is so prevalent, is probably “big” and “fast.”

It’s very easy to celebrate those kinds of companies. You read lots of articles about tech giants. You celebrate IPOs. You high-five friends when they receive venture capital funding. You watch Shark Tank and honor those who receive funding.

The winners of this game often become society’s business icons–and we rarely hear about the failures. Not many people care about those who run out of steam on the venture capital treadmill and don’t get the next round.

If that’s the “hare” approach to entrepreneurship, you don’t often hear about the “tortoise” approach–but it exists. And it’s an equally valid strategy. Sometimes, depending on the nature of your startup, it might even be a stronger path.

How can you tell? The answer isn’t always clear. How quickly you want to grow your business should be a dilemma that you struggle with and think through very carefully.

I call this the Growth Dilemma, and I’ll be onstage talking all about it on Thursday afternoon at Inc.‘s Fast Growth Tour event in San Francisco. Here’s a sneak peek: Take this moment, right now, to pause and decide how you want to run the race.

Growing too big, too quickly comes with a lot of risks. If the venture capital treadmill doesn’t get you, you could drown in debt payments. Financing might not be the issue, but unsatisfied and angry customers could destroy you because of quality or customer service issues. I receive countless calls from desperate business owners who invested or borrowed too much, too quickly. They’re now struggling to survive.

The converse problem, of course, is that there’s considerable danger in moving too slowly. You can easily get stuck in analysis paralysis, in which case you would not be comfortable with taking any risk at all. If you follow this path, your competition will pass you by.

You need to find a rhythm you are comfortable with. You need to make your choices thoughtfully and carefully.

Remember, the tortoise often wins the race.

You Are Not Bigger Than Your Company. Here’s Why

You Are Not Bigger Than Your Company. Here’s Why

In my last post, I talked about losing my father a few months ago. Even in death he taught me more about business than perhaps anyone else.

As his health declined, I essentially disappeared from my company for a couple of months. Between flying from coast to coast to see my father and making different arrangements, contact with my team was minimal. I trusted that my team would run the company just fine in my absence — and that’s precisely what happened.

I have learned that a company is more significant than just one person, especially if you have been in business for some time.

Why Time Away is Good

It turns out that the only thing that I had to do was cancel a few speeches– no big deal. My experience shows the importance of putting together a good team, establishing a caring culture, and promoting consistent values.

Maybe you are the genius behind your company, but unless you’re running a small operation, other people are executing your plans, and I assume you trust them.

One theme I come across repeatedly is the entrepreneur who refuses to relinquish any measure of control for fear of disaster immediately occurring. It’s a serious problem in more ways than one. Not only does the entrepreneur risk burnout, but a lack of differing opinions can lead to tunnel vision, not to mention a lack of checks and balances.

Again, remember that your team is more capable than you think. If you’re proficient enough to be a successful entrepreneur, you probably had the foresight to choose strong supporting players.

Disappearing Act

Don’t believe me? Try this simple test: Disappear for a week with little notice and see what happens. Most likely, nothing terrible will happen. Even if something does, it’s likely easily fixed upon your return. Your time off may offer you some fresh perspectives as well.

Your staff probably will appreciate you being away because it gives them time to stretch their wings a bit and take decisive action. If you’re that much of a control freak (even if you’re a generally good boss), they’re probably chafing a bit under your command.

The point is that at some time in everyone’s life, you’re not going to be able to devote full attention to your business. Whether it the aging or death of a parent, an emergency involving your spouse or children or an unforeseen incident such as your house burning down, your attention is eventually going to be divided.

Alternatively, maybe you’re feeling stressed out and want to enjoy the fruits of your labor with an extended overseas vacation. Knowing you can trust your team will help give you peace of mind.

On My First Father’s Day Without My Father: Reflecting on What Dad Taught Me About Business


Dad’s advice was some of the best I ever received.

I lost my father a few months ago, after a long and courageous battle against colon cancer. Sunday will be my first fathers day without him, and I want to talk about things I learned from my father that can be applied by any entrepreneur.

On the surface, my father and I have little in common in terms of business. He was an ophthalmologist who ran a private practice in the San Diego area, while I’m working to scale a national brokerage and loan business. While the window dressing of the companies are different, there are values and principles that my dad taught me that I am eternally grateful for.

Treat Every Business  Interaction as If Somebody’s Eyesight Was On the Line

In the wake of my father’s death, my family heard from several of his eternally grateful former patients who described him as a lifesaver for saving their eyesight. My dad offered a consistent, reasoned approach to every patient as they explored different options together to improve the patients’ eyesight. I learned these principles from my dad.

It’s a stretch to compare business financing to saving someone’s eyesight, but we work methodically to develop the best and most rational solution to every client’s needs. We want to give them the financial tools to protect their business, and take it to the next level.

It’s vitally important that patients or clients understand their options and the choices they have to make.

My father’s patients entrusted him with their eyesight. I only hope that I can instill the same confidence in my clients as he was into his patients.

Never Never Give Up

My father fought a courageous and tenacious battle against colon cancer that lasted more than a decade. His journey included 23 surgeries and multiple rounds of chemotherapy and immunotherapy. He did not leave one stone unturned as he methodically did everything in his power to beat his disease. He displayed tenacity, courage, and bravery, unlike anything I have ever witnessed in my lifetime before.

I dedicated my book, “The Growth Dilemma,” to my dad when he was alive. The inscription said, “In Honor of my Dad, Whose Ten Year Battle Against Colon Cancer Makes Entrepreneurship Look Easy!” I meant what I said.

Building a company is a war. Unless you are exceedingly lucky, you will encounter many unexpected challenges and twists and turns along the way. It will be a rollercoaster with ups and downs.

Over the years as I have had typical scary and uncertain moments, I reflected on my dad’s struggle and put my head up high and kept plugging on. His example serves as a guide for every entrepreneur.

While I miss my dad on father’s day, I am eternally grateful for the lessons he passed on to me.

Leave Superman to the Movies and Comics, Because Despite What You Think, You Can’t Do It All

It seems that everyone likes to live vicariously through superheroes, but vanquish any thoughts you have of being Superman when it comes to your business.

I know a guy I call the Superman Entrepreneur because he literally thinks he’s invincible. On the surface, everything looks good. Not only is he building three businesses, but all of them are doing well and have real growth potential.

The fly in the ointment is that he’s overextended both financially and from a time and stress perspective. We’re about to refinance one of the businesses, which would cut his financing costs in half. Sounds good, huh?

Stretched Too Thin

Unfortunately, most of those positives are negated because he’s way behind in his sales tax payments. The reason for that is he’s stretched too thin and he refuses to relinquish any degree of control.

On more than one occasion, I’ve counseled him to consider getting rid of one of his businesses (theoretically cutting his workload by a third). Not only would his stress level diminish, but so would his astronomical workload.

Every time he’s balked, cutting short the conversation. For now, he’s mostly able to keep things under control, but what happens if things change? Think about all the possible problems that might emerge.

Perhaps a fire destroys inventory. Maybe a market collapses when a competitor comes up with a better product or service. There could be unexpected legal action that throws him into a bind, and so on.

Then there’s his personal life. What if a child, his spouse or his parents suddenly require extensive medical care? What would happen if he had to go through a divorce? What if his personal finances got clobbered by a bad investment?

Life can still be super.

There’s no shame in not being Superman. The entrepreneur I cited here may end just fine with his three companies and, if so, more power to him.

However, there’s always more to life than running yourself ragged. If the entrepreneur took a step back or maybe sold off a business (or relinquished some of the control and duties in his three enterprises), he’d probably enjoy life more.

Don’t discount the importance of a positive work-life balance. When you’re old and gray, you’ll be less likely to have regrets if you took some time to attend those elementary school plays, vacation with your spouse or spent extra hours with your parents in their declining days.

Yes, this is a column about how to succeed in business (while really trying), but you can’t succeed if you have no life outside of work or if work is tearing you apart on the inside.