Managing Debt at Your Small or Medium Business (SMB)

Loans are not evil. When managed well,

Loans are not evil. Managing debt and cash flow are crucial, however, to continuing to view debt as an aid.

Many business owners are concerned with managing debt. Some business owners believe that all debt is bad. I vehemently oppose this belief because many of the best businesses and real estate projects would never have occurred without debt, sometimes large quantities of it. I believe the focus on debt as the issue or concern is erroneous and misguided. Instead, the main focus should always be on cash flow, specifically operational cash flow.


Your business can operate indefinitely (i.e., for years) if you structure it in such a manner that you have positive operational cash flow, even if you operate at a net loss. This means that if you have a steadily growing business with customers who pre-pay or put down deposits, you can structure your inflowing cash flow to always exceed the outflowing cash. However, without sufficient cash to pay your bills, your business could close in a matter of weeks. (This has actually happened with businesses, small and large.)

In other words

You need cash to run your business – to pay employees, contractors, suppliers, vendors, utilities, rent, insurance and more. If your business has strong credit practices and either requires deposits or diligent billing and accounts receivable follow up practices. Your business should always have more cash coming in or have a net zero cash flow on a WEEKLY basis. If not, your business needs external financing or, if it has assets, it needs to sell some of those assets. The external financing provides financing cash flow and the sale of assets provide investment cash flow. The use of financing or investing cash flow to cover the PLANNED shortage of operational cash flow is how you appropriately manage your debt.

Weekly cash flow

Focusing on weekly cash flow at least 12 weeks out and determining major cash needs to support growth or infrastructure (i.e., hiring employees or capital expenditures) 1-3 years in advance will help you readily manage your debt and stop it from becoming a “debt dilemma”. If you do not have the operational cash flow to repay debt, then you must completely avoid the use of debt. Instead, you’ll need to focus on procuring equity investors or on obtaining as much as you can using noncash means (i.e., partnerships, swaps/barters, licensing, etc.).

Managing debt is critical.

If you don’t have the cash flow to support debt, pursue equity or alternative options!


However, if you strongly believe that you’ll have the cash to repay the debt at a later point, you can search for a debt provider that will provide your firm with a term loan which allows interest only payments and a lump sum repayment at the end of the term. The availability of these loan structures depends on your company’s industry and current banking relationships. If you have inconsistent or seasonal cash flow, you need to find a debt provider that will work with you to structure your repayment schedule to match your firm’s cash flow. Alternatively, you can obtain a line of credit that you rarely tap into except during the low cash periods.


If your company is growing rapidly and has similarities to many of the above scenarios, then you will generally need a mixture of equity and debt. One final thing to remember is that for debt, the key is to match your firm’s need to the loan length (i.e., short-term need to short-term loan or credit line) and the cash availability to repay the debt to the loan repayment structure.

For more information on cash flow and external financing sources, pick up your copy of The Funding Is Out There! Access the Cash You Need to Impact Your Business, available at Amazon, Barnes & Noble, Books-a-Million, and Powell Books.