Last week we introduced The Power of Small.  If you haven’t seen that post, I highly suggest going back and checking it out.  It explains the why behind this “The Power of Small” series and sets up this series about 3 Small Changes that Make Big Impacts on You and Your Biz.  You can always come back to this post afterward.

Today’s small change is about transforming debt into financial freedom.  Now, this might not seem like a small change.  Debt might seem like a huge insurmountable obstacle to you.  The Power of Small comes into play with debt in that small changes, over time can result in huge changes to any financial outlook.

There are 3 common scenarios where debt most often crops up for entrepreneurs.  How you deal with that debt will be different depending on where you’re at with your business so I’ve broken this post down into 3 different sections for 3 common times when you might need to make a decision about debt and financial freedom.  Check out all the sections if you’d like or just skip to the section that most applies to your stage in business.

If you’re just getting started and debt is holding you back…

You don’t need this graph to know student debt is on the rise.

Yet, you might not realize that student debt is a big thing keeping would be entrepreneurs from starting their businesses.

But it doesn’t have to.  There are legitimate paths to success.  Finding your path and following it will change your life.

We’re currently developing an online workshop called “7 Proven Strategies to Start a Local Business While Still Paying Student Loans (Without Refinancing or a Rich Relative).”  If you’re interested in getting first dibs on this workshop when it’s ready, click here to get on the interest list.

In the meantime, here’s our #1 tip and it might seem counterintuitive: Instead of paying extra toward your loans to pay them off faster, put the extra in a savings account.

When you take your “leap” from cubicle into entrepreneurship, you’re still going to have basic expenses, including the minimums on those student loan payments.  Even if you’ve paid extra, those minimums don’t go away.  You’ll find that savings utterly invaluable.

Three words of warning:

  1. You have to be super disciplined here and act like the money in the savings isn’t there until you’ve made the leap.  If you can’t ignore the savings until the leap, it might be better to pay above the minimums on the loans.
  2. Don’t let that savings make you relax during those first few months after you leap.  Wouldn’t it be great if you didn’t have to touch it at all?  You definitely want to avoid the worst case scenario where your savings runs out and you have to go farther into debt.  Keep your entrepreneurial fire alive and live like you’ve never lived before and will never live again.
  3. Like all financial advice, this doesn’t apply to everyone.  Consider your own situation and do what’s best for you.  Experiment until you find the right scenario.  You can do this!  Never give up.

If this is you, stop reading and set up an auto-transfer from checking to savings for a set amount each month or each payday.

If you’re into business a couple years but debt payments are keeping you from sustainability and profitability…

My biggest advice here is to set a deadline.  Give yourself a deadline for being debt free.  Then make a plan for how to get there.  How many extra sales do you need to make?  How big and what kind of an event would you need to throw?  What kind of big client would you need to land?

Set that deadline maybe 3 months, maybe 6 months, maybe 1 to 3 years depending on your business and how big the debt is.  Then quantify exactly what you need to do to make it happen.

You will start to see how easy it can be – maybe something like growing sales by 10% or landing 1 new client per month.  If it doesn’t feel easy, you haven’t broken it down far enough.  Any amount of debt can be reduced into a certain number of $100 payments or $25 payments if $100 is too much at a time.

The key is to set the goal, make the money, and actually put the extra money toward the debt rather than use it for something else you don’t really need.

If this is you, stop reading and take 15 minutes to set your deadline and start drafting your action plan.

If you’re further along and thinking of taking on debt to expand…

While the first 2 strategies are ones I’ve used and totally worked for me.  This one is a work-in-progress.  This is exactly where I am in my business right now.  Here’s my approach.  I’m taking a slow and steady march toward expansion.  First things first, I’m making sure my flagship is solidly profitable and can run pretty much without me.  As a small business, solidly profitable and effective management is enough to focus on for now.  But that’s gotta be the #1 priority.

Yet, while that’s still underway, I’m doing 2 things to make sure I’m in the best possible place for expansion.

  1. I’m growing my money.  Those debt payments I used to make from the 2nd scenario are now sitting in my account and growing a nest egg of sorts.  As they grow, I’ll need to take out less and less money in the form of a loan or I’ll need to sell less and less equity to an investor.
  2. I’m planning.  In my experience, there’s nothing that saves money more than good planning and there’s nothing that wastes money more than lack of or poor planning.

So, if you’re thinking of taking debt or selling equity to expand, be sure you’ve “got your house in order” so to speak.

If this is you, stop reading and take 15 minutes to evaluated the profitability and management of your flagship.  Are you really ready to expansion?  If so, what can you do today to reduce the debt you need to take on or the equity you need to sell?  How might you grow your money or plan really well, starting today?

One more important consideration no matter which scenario you’re in

All of this is about priorities.  Not everyone’s priority is to get out of debt.  To each his or her own.  Personally, I’d rather be debt-free than own a fancy car or live in a fancy house.  The lack of stress and sense of freedom I get from not having to worry about money is my top priority.  Others want to look good and fit into a certain social strata.  No judgement here.  Like I said to each his or her own.  Just know and stick with your priorities!  That’s definitely the point of it all here.  If you’re priority is to get out of debt, I hope these strategies help you but I know you’ll find a way if you keep at it.

Comment and share

Which scenario are you in, 1, 2, or 3?  What strategies are you using for financial management?