Angst vor Schulden bremst dein Wachstum

0:00I have a rental equipment company in Mexico. Uh we're currently doing about 7 million a year. And um what it's um what it's a stopping me really right now it's my psychological and my psychological fear to um have a lot of debt. I don't want to go I I don't want to go more into debt. I can't. Um we're currently the best uh rated company for dealers in Mexico.

0:31Uh clients we're number one. We're number one client for all the dealership machinery that we buy in Mexico. Um They have we have a >> So you want to grow and you don't want to go in more debt in order to grow. >> Yeah, but it's becoming like really really uh volume market. Everyone's buying a lot of machines. Um we've been uh growing slowly but growing 30% a year.

1:00>> That's great. That sounds slow. That's good. >> And I want to hit at least 5 million in the next 3 years. >> Yeah. >> Um so let's say 1.5 million for next year. >> You mean growth? >> Yeah. On sales monthly. Yeah, 1.5 million monthly. >> Got it. Got it. >> I'm currently on 1 million. >> Mhm. >> Um I definitely can. I have everything all of my dealers trust me. Uh it's yeah. Trust built relationship.

1:27>> I got you. So fundamentally you want to grow. >> Yep. >> You don't want to take on debt. >> Yeah. >> Or more debt than you are right now. >> More more debt yeah, exactly. Yeah, I'm I'm on the limit. I have like my percentage of debt in my mind that I don't want to jump. Uh because that's um finance uh health health health for me like mentally and for the business. >> Okay. So one of them will have to give.

1:53I'm sorry? You want to grow. >> Yeah. >> You don't want to do the thing that is required to grow for your capital intensive business. >> Yeah. >> So, your rate of growth will slow down. Or you have to re-adjust how you analyze risk. >> Okay. And well, my question is um >> we had it. >> No, no, no, really. No, yeah, I know. >> the psychology around the fear of the debt thing. I thought that's where we were going.

2:18>> how do you get rid of that uh psychological of fear? Or what would you do in my place because >> Math. >> Math? >> Math. >> of math? Like >> So >> Oh, your math be >> So, fundamentally, debt increases risk. Right? And so, the more debt you take on, the more risk you're exposed to, which means volatility has a bigger influence on the risk of your business, the likelihood that you fail to make a payment to a banker or whoever you you you owe the money to, right? And then if you fail to make payments, eventually they take over control and it sucks, right?

2:48So, the math is what cuz like if you had a if you owned everything in cash, would there be risk in your business? >> No. >> Right. If you owned everything 99% in cash and 1% in debt, would you feel comfortable with that risk? >> Yeah. >> Okay. So, this is just a how much risk are you willing to take question, which comes down to literally just doing the math around the volatility. What is the seasonal volatility of the business?

3:12What are the payments that I'm I'm What cash flow are we spitting off relative to the debt covenants we have? And then what coverage do I feel comfortable knowing that I can commit to over this period of time given the performance of the business? >> Okay. >> Now, typically, you will not get good debt without them already doing that diligence for themselves. Like a good lender will already do most of that modeling for you when you say, "I would like more money."

3:40Now, consumer debt versus business debt different and that's why I'm saying this. And so, for you to say like, "I'm going to buy this truck for $100,000 and this truck is going to generate $400,000 per year in gross profit and my payment for this $100,000 truck is extended over 5 years. And so, I need to make $20,000 a year payment and the truck makes me 400. Is that super risky? >> Mhm, no, it's not. >> It just depends on you. And so, in terms of getting over the psychology, it's just like how likely is it that I'm going to default on this payment? And I think that is entirely individual. Dave Ramsey takes on no debt. He says for him, 1% debt, 99% cash is too risky.

4:16That's fine. And so, there are some questions that are purely individual. And so, said differently, if you wanted to grow the business and say, "I want to grow without debt." You totally could. You will just sacrifice your growth. >> Exactly. >> You can still grow. It will be slower. And so, fundamentally, that's the that's the trade. There's nothing wrong either way. It's just that like you want to grow faster, but you don't want to take on debt. So, either we have to change how we appraise risk, so it's not that risky, so you're not afraid, or maybe you're right to be afraid and other people will go belly up in time and then you'll buy their assets for way less and then you'll just win in the long run.

4:51Chick-fil-A, which is famous uh restaurant here, they grew significantly slower than Boston Market, which those of you who are old enough to remember Boston Market. So, Boston Market uh started out later, blew up, IPO'd, and then imploded, and the whole time Chick-fil-A just kept growing. And it's because for them, the slow and steady was the thing that won the race. And so, if you believe that you want to stay in this business for 20, 30 plus years, I don't know if that's true. Is that true? >> Yeah, yeah, that's true. >> Yeah. You get those vibes.

5:16Um So, if that's the game, then I think you're right to be appropriately risk averse. >> Okay. >> Because fundamentally, if you grow a little slower, but you make it 30 years, you'll be gigantic. >> Okay. >> But if you go out of business on any bad year because of the debt covenants you took out, you go back to zero. >> Okay. >> And so, I think it's okay to be appropriately risk averse. Just make sure that like again, at 99 and one, you're fine. So, just draw the lines out. And nice thing is that these are projections. You know what the seasonality is in the business, but you have to be willing to say like what if one of these vendors go somewhere else?

5:52What if robots come in and these machines are no longer viable, etc., etc. Right? So, it's like how much risk am I willing to take? >> Good. >> So, I think it's appropriate to have this concern. Um I just wouldn't have emotionality around it. Trying to I would try to estimate what How likely do I think these things are? And then you make your bets. And at the end of the day, we all do that. We all make bets. So, it's just part of the game. >> Thank you very much. >> Appreciate you. >> If you are a business owner and you are not growing as fast as you'd like, I'd like to give you a free gift. So, my team and I put together the $100 million scaling roadmap, which is basically 200 hours of us looking over all the portfolio companies we've had and what stages of growth they went through and more importantly, where they got stuck and how they got past it. And so, we broke it in these 10 stages and we made this little kind of quiz thing where if you put in your business information, it'll tell you where you're at and the most important part for you, what to do for each of functions of the business across product, marketing, sales, customer success, recruiting, IT, human resources, and finance. And so, no matter what you're struggling with, someone else has already struggled with it and solved it. And so, I'd like to give you this thing absolutely free. You can go to acquisition.com/roadmap, plug in your business information, and if you want us to actually help you deconstruct the business and you're trying to scale, we'd love to help you out. On the thank you page, you can book a call with my team and we will look at the business, see if we can help, and if we can, we'll invite you out to Vegas and we'll do this in person live.