Growing your business from the ground is hard work. But sometimes, hard work doesn’t cut it and you need something extra, usually in the form of funding. Cash. Money. One of the ways to get more money is by taking on debt. Although it sounds scary, taking on debt can help you buy that equipment you’ve been wanting to for a while, rent a bigger facility, or pay more employees that will help your business raise.
In other words: whatever your needs are, taking on debt can be a useful tool when used correctly!
One way of doing this is to leverage the debt you have taken on. This is called “profitable leverage”, and if you aren’t familiar with it yet, don’t worry! That’s what this post is all about!
In our last episode, we had Dominick Wallace with us: he’s the owner of Wallace Capital Funding LLC, a #1 Amazon Best-Seller contributing author in the category of business finance, and a University of Virginia graduate earning a bachelor’s and master’s degree. He joined us to talk about profitable leverage in a simple way.
So without further ado, here’s a closer look at what business owners need to know when thinking about profitable leverage, from a financing company point of view:
Amalie: So what questions does a business owner need to ask themselves before taking on debt or look for financing? What are some things that they need to consider before doing that?
Dominick: Look at your systems and at your financials. And one of the things that I learned about financing is to get into the front of the game with a type of financing called account receivable financing. It’s basically really advancing your receivables instead of having to wait.
Another thing is to do use that money for what it is intended for; for example, as a painting contractor if I need paint and painting supplies, ask if you can manage the cash flow and pay on terms. Now as you grow maybe your supplier might not give you a hundred thousand dollars on terms, but if you can kind of manage that cash flow game, then you won’t actually have to take on debt. Then the next thing is just managing how much you get paid and your profit margins, where you actually make money from.
Amalie: What are some ways to leverage the debt for large profits or increased profits?
Dominick: I just recently financed a roofing contractor, and they were paying 25 grand a month on two loans that total up to $250,000. And now I was able to refinance, and now they’re only paying $3,000 a month. And what happened to them? They took on one of these MCA loans, these merchant cash advance loans, and those loans, they take out cash from your account on a daily basis, versus a traditional loan, which would be a month. And I’m telling all of your people that are listening, stay away.
But I mean, we paid that off and I’m like, “Hey, I’m giving you this money. If you manage between your profit margin. So let’s look at how much you’re actually bidding your work for”, and this could be any business. It could be even a restaurant. Like how much work goes into each plate for you to make a profit?
The crazy thing is a loan is typically on your balance sheet. It’s not on your income statement, which people usually looking at, but they’re not typically doing a cash flow statement, really looking at what’s going in and what’s going out.
Amalie: And a bookkeeper can help with that.
Dominick: Bookkeepers can help with that. But one thing that you can do on your own if you get someone that helps set that up for you is that you can have a line item that looks at the loan payments that are coming in and out or to propose loan payments and kind of look at what that would look like so that you’re not putting yourself in harm’s way. Maybe from a resource standpoint, you guys can help them with the systematization part of it. But if you don’t have the resources right away, it’s smart to take on that additional business, even though you could qualify for a loan to do that.
Amalie: You just need to evaluate it before you take that step, and once you’ve take that step, then you need to figure out, how are you going to pay it off? How are you using it? Are you getting your ROI? And then making sure that you’re accountable to making the payments on it and figuring out if are there times when you can pay more than the minimum payment. Maybe part of your plan to pay off the debt is to increase your profit margins in order to be able to afford to pay down the debt faster.
Dominick: Well, yeah. So let’s say even if you own a building or you have a mortgage and obviously rates are historically low right now. If you refinance your house and you’re able to reduce your mortgage payment, if you can actually continue to pay that same payment, even though you reduce your interest rate, go ahead and do that. And obviously, you’ll pay your mortgage off three or four years ahead of time, maybe even higher, depending on how much additional payment you’re making.
Amalie: So for anyone listening, what is the one or two things that you want them to walk away with after listening to this episode about leveraging their profitability.
Dominick: know your business and what I mean by knowing your business is knowing where the hidden profits in your business are currently.
And a business loan is supposed to be fuel to grow your business, it’s not to save it.
One other thing I will say is you always want to have your business set up to be able to be sold at any time. If you can operate your business where you can sell it for the maximum amount, because if your business is structured where it’s sellable at any time, then it’s also financially, not just for you, but anyone who wants to buy your business. One of the things that we teach is to set up your company so that it’s credit-worthy.
And that’s it for today! We hope this interview has been helpful to you. Until the next episode!
To listen to the full episode click here. https://systematicexcellenceconsulting.com/podcast/
If you’d like to connect with Dominick, you can reach him at:
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