Is there such thing as Healthy Debt?

Debt can be necessary in a business journey. Loans or financing, expands your company’s financial bumpers, needed for growth. However, it is critical to understand the type of debt you want to take on. Healthy loan practices and financing result in healthy successful growth. Then there is the kind that demolishes your business.

Jeb Ory, co-founder and CEO of social advocacy platform Phone2Action, said financing is a crucial ingredient in the growth of many companies.

“Access to capital,” he said, “can be the difference between explosive growth, linear growth and the death of your business.”

As the business owner, your goals are the intentions for debt, good and bad.  To some it is obvious, acquiring debt to accomplish goals, projects your company to build your business. On the other hand, taking on debt without a plan for the use of the funding, can be detrimental to your goals.

“Debt should be used to extend runway and help businesses make purchases that they couldn’t normally make if it makes them more competitive,” Ory said. “The type and amount of debt should be directly linked to the type of business.”


Healthy debt isn’t a defined by the amount

Debt should be defined by precise forward motion plans. The amount of debt that’s “healthy” for your business is very individualized, per your position.

Instead of reaching for a defined number, view healthy debt as debt tied to specific growth plans and strategies for your business. “Good debt is tied to something solid with a clear plan for why it’s helpful,” said co-founder and CEO Harj Taggar, of Triplebyte, a hiring platform geared specifically toward software engineers and startups. “Bad debt is money you spend without understanding how it impacts your business.”


Creating a plan

Creating the right plan for your business is the foundation to solid success. Do you specialize in finances? If not, when considering taking on debt to grow your business, finding the right CPA, accounting specialists, and financial professionals to be by your side is an imperative step in creating the right plan. It may take some time to find the right team. Don’t just keep looking for the person who will tell you the answer you want to hear. It might not be the right answer for you. Find one that aligns with your goals, who has the expertise that you can entrust them with your goals and they can interject in the planning.

Ory said Phone2Action has a CFO and accounting department that helps break down the company’s financial situation and ensures they’re moving in the right direction. “If you took on a level of debt based on growth assumptions that proved to be optimistic,” Taggar said, “[but] growth slows and you’re slow to react, you can be left in a fatal situation.”


Bottom line

If you’ve taken on debt that you can no longer pay, it’s crucial to act fast and stop spending money. Your financial team will be able to spot this trend sooner than if you go it alone. “Start cutting costs immediately,” Taggar said. “It’s a painful process, but the longer you delay it the worse a position you’ll be in.”

Keeping your debt healthy is hard to do when you go it alone. Financial professionals will make a positive impact on your company’s success.  Call OrganizerForU today to get started planning for healthy debt to grow your company.