Author: Chloe Quigley, CEPA, Business Exit Planning Advisor
Contributor: JJ Comiskey
A lot of the business owners we work with are highly averse to debt. Having no debt can feel like a clean slate. It can symbolize a green light to move forward, whereas having debt can feel like a burden or weight to carry, slowing down an owner and clouding their vision. Personal feelings about debt can stem from the owner’s first experiences with money and how they saw or managed debt throughout their younger years. These feelings can also be motivated by an individual’s appetite for risk.
When an owner is selling their business, potential buyers can also see outstanding debt as a negative. However, there is no black and white rule for when an owner should or should not take on debt. Debt can help a business grow. It is often an investment in the future of their business, as well as their own future and earning opportunities.
JJ Comiskey, Vice President at Cornerstone National Bank and Trust, shares “A common myth is that Bankers or bankers view debt as a bad thing. If properly structured and in appropriate amounts, debt is very helpful to a company.” He continues, “Owners should look for a lender that’s willing to take the time to understand their business. Banking is not a “one size fits all” industry. Smaller companies tend to get lost in the “crowd” in a bigger bank, receiving little to no attention and sub-par service. A banking partner should fit a company’s present needs as well as the ability to grow with them. This type of banking partner can create a lending program suitable for the business and adapt as necessary.”
Comiskey also shares three questions he asks business owners to consider when deciding if they should borrow funds for growth.
- Will this debt help me grow both my top-line revenue and bottom-line profitability?
- Can I make the payments for this new debt if the growth I project does not fully materialize?
- Is this a one-time need or will I have ongoing borrowing needs as I continue to grow?
Asking and answering these questions honestly and objectively is difficult. As with any big decision, these are best made with the expertise and confidence of those you trust around you. Finding a lending partner that understands your situation and motivations is key. Meanwhile, making sure your personal plan is also aligned with this decision, to structure the debt appropriately and maximize value, is also key.
For us, when we hear that someone is thinking about growing their business, we are excited to come alongside them in their next pursuit. Any type of growth involves risk. Knowing a business owner’s personal financial situation, as well as their personal goals for themselves and their families, allows us to map out planning opportunities that can support their business plan. With a team of advisors around them, all tracking toward the same goal with the business owner at the center, a business owner, their employees, and loved ones can rest assured that a plan is in place. This plan, necessarily, accounts for risks, failures, and the unforeseen and unpredictable happenings in life. The advisors are the sounding board to help have clarity around what makes sense and when.
As a business owner, your mind is required to be in and on top of several places at once. With a focused team, each with expertise in a different field, you have an advocate in each part of your exit plan. To talk about what this team could look like, and how to identify the right partners, reach out to our team today.
The opinions contained in this material are those of the author, and not a recommendation or solicitation to buy or sell investment products. This information is from sources believed to be reliable, but Cetera Advisor Networks LLC cannot guarantee or represent that it is accurate or complete.
Chloe is a non-registered associate of Cetera Advisor Networks.