Should you borrow to invest in your business? So quite often, I come across business owners. And even though they don’t have any cash, and as a result, they can’t actually carry out the plans they’ve got for their business growth, they’re still incredibly reluctant to borrow money to actually fund that growth. And I just wanted to go into some of the reasons why, and more importantly, the best way to overcome that fear of borrowing.
Should you borrow to invest in your business
So really, the reason, I think just in general, as in life, we are all taught, not all of us, sorry, but a lot of people are taught by the parents and other people they know, and even schools, that it’s really important to save. And you should try and avoid loans and borrowing as much as possible. So we live in a society where borrowing has always been viewed as a thing unsuccessful people do. And that’s just something I’ve picked up through lots of different conversations. Maybe you’ve got a different viewpoint on it, but that’s what society has told people to do.
And I think what’s happened then is they’ve got something ingrained in their mind as borrowing is wrong. And what I wanted to do into this video is just talk about reasons where borrowing can actually be a really good thing in a business. And the reasons why people don’t like doing it and how to overcome them.
So people I’ve come across, they’re more than happy to borrow for their house. And if you’ve ever read Rich Dad, Poor Dad, you realize actually your house is not an investment because it is something that costs you money. And although it can go up in value, but then to release that value, you’ve got to be homeless or you’ve got downsides substantially.
So the point is, though, people borrow for the house. They’ll borrow to buy a rental property. So they might put a $40,000 deposit down and borrow the other $200,000 for their rental property. But one of the most bizarre things is people won’t borrow to invest in their business.
So if you think about it, you put money down on this rental property and then you borrow money. You might only gain 5% yield out of that rental property a year. But then if you go and borrow money to put down into your business, then you could be making a 300% return on that money you borrowed to put down into your business. And you could probably pay that money back within a year of borrowing it anyway, just because that’s how marketing works. Marketing is so disproportionately rewarding to people who invest in it, that actually you can borrow money and then pay it back really quickly just because of the results.
But what I really wanted to go into is just the reason people are really, really afraid to borrow in their business, apart from all the preconceptions they’ve been loaded with by their family and upbringing and society. Often, they don’t have confidence in their own business plans. And that’s the one thing that can really, really put them off borrowing because they’ll say things like, “Well, if I borrow this money, what if I don’t get that return? What if it goes wrong?” And that’s the wrong way to think about it. What you need to do if you’re thinking of borrowing money, but you’re not sure about your plans, is get to a point where you can be a hundred percent certain about your plans.
If you think about it, anything you put in your business plan can actually be tested. If you’ve got a particular idea for a product, you can run what they call rapid fire testing on social media ads and Google ads. And you can actually see what people are responding to and what people aren’t. And if you’ve got a particular structure in the way you want to deliver your service, or you’ve got a particular idea for your team, you can actually talk to them and get their opinion and get their feedback about it, and actually work out some detail. Give them some options and see the ones they respond to the best.
So the real reason people don’t want to borrow is because they don’t have faith in their plans. And the reason they don’t have faith in their plans is because their plans aren’t based on real measurable information that they have access to because they haven’t actually gone out and done the testing. They’ve just said, “This is going to be the plan. And I’m just going to go ahead with it, whatever.” But actually, it’s not based on any kind of data. And that’s what undermines someone’s confidence in achieving that plan.
So what we do as a business is we specialize in helping people scale their businesses and then sell them when the time’s right. So what we do really, we help people put the plans in place and then execute those plans. And when we help people develop those plans, we also make sure that they’ve got ways to sense check those plans as well. So if you are looking at or thinking about exiting your business in the future, or if you’re thinking about just building up its value and focusing on building up its value as much as you can, then get in touch with us, we offer a completely free business strategy session. So get in touch with us, go to our website, book yourself in for that call. And we’ll take it from there.