Here's part of a newsletter I got from Dave Ramsey (financials guy). I have seen both sides of this equation. I built my business "on the cheap" from the ground up. I bought many of the chairs in the office for $1.00 each from a corporate auction.
Myths and Truths About Small Business Debt
You may think you need to borrow money to start your business or cover cash flow fluctuations. The truth is, most businesses are started with less than $5,000, and you can predict and plan for cash flow fluctuations.
You may think you need a credit card to make online purchases, to pay for travel, or to help you keep track of your expenses. The truth is, a debit card is all you need to make online purchases and travel arrangements, and a simple accounting system will track your expenses without charging you 18% interest.
But what about large equipment or real estate purchases? You have to have debt for those, right?
Actually, there are four ways to avoid debt for large purchases, and Dave has done them all:
- Rent until you can pay for it. Dave rented his building for years until he saved enough to pay cash for it. It wasn't always easy to walk past the loose brick on the sidewalk or stare at the ugly brass in the elevators, but he just used that as motivation to buy (and remodel) it as soon as possible.
- Outsource it. Dave isn't in the printing business, so he's never invested in expensive printing equipment. He outsources his projects and keeps costs down.
- Buy used (and ugly). Dave bought some ugly used furniture from a company that went bankrupt. Why were they bankrupt? They had debt because they bought furniture they couldn't afford.
- Pay cash. Save systematically until you can pay cash.