I dare you to convince me that debt is truly the best choice for any person or company. Sometimes the economic status quo makes it the best of bad options, but that problem can usually be traced to governmental policy or cultural mindset. No, debt is like a virus waiting for the right conditions in which to take over and kill the host.
While there is no single evaluator that can be used exclusively for deciding on company financial stability, debt is a good place to start. Just knowing whether or not a company is in debt can nearly eliminate the need to be so concerned about deciphering free cash flow. And, believe it or not, there are some companies with zero debt. Others have enough cash on hand to more than pay off any debt on the books. These are typically financially solid companies.
Concepts that seem complicated when looking at the stock market and company balance sheets, can sometimes be made clear by thinking of it on a personal level. If you are in debt and you lose some of your income, you are in a much worse state than if you owe nothing for your house, car, furniture, whatever. Without the burden of debt (notice that it is metaphorically referred to as a burden), you have time to regroup and adjust, instead of just panicking or getting into more debt to “tide you over.”
I know about the idea that most people couldn’t start businesses without a loan. If this is true, it would sadly be mostly because of choking government regulations. However, I say there is also impatience involved. Aren’t there plenty of stories of amazing start-ups from nothing?
There is also the argument that if a person can make more money than the interest that is being paid, it is wise money management. The main problem with that is that you still have to pay back the loan, even if the money-making idea didn’t work out. Having debt is always like tying a stone around your ankle and trying to run. Maybe that’s enough metaphors?
Gathering a few investors to an endeavor is different than debt. If you can convince others to willingly put some of their hard earned money into your business venture, hopeful for some of the future profits, it’s probably more likely that you have a good idea and a good reputation. That’s a good debt free way to begin a business.
