Makes Cents Posted July 11, 2013 Share Posted July 11, 2013 Interesting topic. Debt can be good, but only if its reasonably used. You have to be disciplined in your application of it. My route is thankfully now at a point where it is paying for its own growth but I never would have gotten to this point this quickly without some small debt. Had I incurred no debt as I grew it would have taken me years to get to this size. I think the real answer is weather or not the debt pencils out favorably in terms as to how long it takes to pay off. 90-180 days is my limit. The second part of the equation is you need to watch how much you pay for the debt. Take new vehicles, I have friends that really dont even care what the price is, they only care about their monthly payment amount . This is a boom for car dealers because now they over-inflate the price of the vehicle and just extend the term of the loan. I think many vending companies and distributors do the same thing. If the vending machine and the debt is priced fair and the vending operator competent, then debt can be good. . Link to comment Share on other sites More sharing options...
mission vending Posted July 11, 2013 Share Posted July 11, 2013 My vending business is and has been debt free for several years but my rental properties are not. If I paid cash for my rental properties it would tie up a tremendous amount of cash and drastically reduce my return on investment. Link to comment Share on other sites More sharing options...
Big Mike Posted July 11, 2013 Share Posted July 11, 2013 A non snarky question for you Steve. When you were in debt did you ever total up the interest payments you paid per month? Are you glad you are saving that money now? I ask because that is what caused me to change the way I think. I want my money in my pocket not the banks. Maybe a better way to say it is "All debt represents risk" If you have debt on your equipment your running the risk of not being able to make that payment at some point. I don't run that risk anymore and I couldn't be happier. Link to comment Share on other sites More sharing options...
havending Posted July 11, 2013 Share Posted July 11, 2013 A non snarky question for you Steve. When you were in debt did you ever total up the interest payments you paid per month? Are you glad you are saving that money now? I ask because that is what caused me to change the way I think. I want my money in my pocket not the banks. Maybe a better way to say it is "All debt represents risk" If you have debt on your equipment your running the risk of not being able to make that payment at some point. I don't run that risk anymore and I couldn't be happier. You said you don't run that risk any more. So you ran the risk at some point to get your self where you are at right? So what's wrong with Steve wanting his piece of the pie and carring a little debt or any one else for that matter. Even if you have done this a long time if a opportunity comes along for a major purchase you still have to borrow the money I don't have 100 grand laying around. You should keep cash free for operating cost. Link to comment Share on other sites More sharing options...
Smiley Posted July 12, 2013 Share Posted July 12, 2013 It comes back to Return on Investment. It always does. If your ROI on what you are using the debt for exceeds the cost of the debt you are probably doing the right thing. If it doesn't, you are digging yourself a hole that will be tough to get out of. Whoever said debt can be a tool is right. As is whoever said to be careful. Link to comment Share on other sites More sharing options...
sherlock Posted July 12, 2013 Share Posted July 12, 2013 It comes back to Return on Investment. It always does. If your ROI on what you are using the debt for exceeds the cost of the debt you are probably doing the right thing. If it doesn't, you are digging yourself a hole that will be tough to get out of. Whoever said debt can be a tool is right. As is whoever said to be careful. Well said....That's putting it about as plainly and accurately as it can be put. And, according to studies done on the finances of most American households, debt is a tool most families are incapable of handling properly. Those people who also happen to be business owners don't likely handle their business finances any better than they do their personal ones. Link to comment Share on other sites More sharing options...
Big Mike Posted July 12, 2013 Share Posted July 12, 2013 You said you don't run that risk any more. So you ran the risk at some point to get your self where you are at right? So what's wrong with Steve wanting his piece of the pie and carring a little debt or any one else for that matter. Even if you have done this a long time if a opportunity comes along for a major purchase you still have to borrow the money I don't have 100 grand laying around. You should keep cash free for operating cost. Yes I can the risk and I decided it was not worth it. It isn't as though Steve never had his opportunity..... He said he did use debt and it turned out poorly. Do you think he planned to have things turn out the way they did? That is the risk allot of people discount. I'm sure if he chooses to use debt again he will make better choices but it in no way guaranties success. I will never let a "Great Opportunity" lead me off my path and put everything I have build at risk. I'm not saying people shouldn't use debt. I'm just saying your taking on risk and there are millions of bankrupt people and people who have lost everything to prove it. 100% of bankruptcies happen to people in debt and 100% of foreclosures are on homes with a mortgage. To each their own. No argument here. Mike Link to comment Share on other sites More sharing options...
Action Vending Posted July 12, 2013 Share Posted July 12, 2013 I m sure we all know people who bought things while times were good ( house, car, boat, vacation etc.) then they loose their job and cant pay for any of it. same can happen to any operator. Build up alot of debt in equipment and all the sudden loose a few accounts or a chain and you could be out of business depending on how much risk you took. Link to comment Share on other sites More sharing options...
sherlock Posted July 13, 2013 Share Posted July 13, 2013 This is what so many people seem to NOT understand: Just because your credit score says you "qualify" for a $500k home, doesn't mean that's how much house you should buy. If your Visa card limit is $25k, charging $25k worth of stuff on it is not a smart idea. And, just because the bank authorized you for "up to" $75k on a car loan doesn't mean you should buy a Mercedes instead of a Chevy or Toyota for half the cost. A lot of American's live beyond their means. For any number of shallow or naive reasons, they max out their credit limits and offers. Then what should only be a small financial set-back becomes a devastating one because they have left themselves no room for temporary hardships. Some American business owners run their businesses the same way...straight into the ground. Link to comment Share on other sites More sharing options...
mission vending Posted July 13, 2013 Share Posted July 13, 2013 I m sure we all know people who bought things while times were good ( house, car, boat, vacation etc.) then they loose their job and cant pay for any of it. same can happen to any operator. Build up alot of debt in equipment and all the sudden loose a few accounts or a chain and you could be out of business depending on how much risk you took. If you take on debt to buy stuff you are taking a huge risk, payments with no additional cashflow is not wise. If you take on debt to grow your business you are also taking on substantial risk that is offset, to some degree, by the increased cash flow. Provided of course that the accounts you get are successfully maintained, if not, at least you at least have the equipment available for other potential locations. On the other hand, what if you have the opportunity to buy a route at a great deal but must borrow $$ to make it happen, isn't there a cost associated with the lost opportunity if you don't act on it? Is it worth the risk associated taking on debt? That's up to each individual to evaluate and decide. Link to comment Share on other sites More sharing options...
havending Posted August 5, 2013 Share Posted August 5, 2013 Interesting topic.Debt can be good, but only if its reasonably used. You have to be disciplined in your application of it. My route is thankfully now at a point where it is paying for its own growth but I never would have gotten to this point this quickly without some small debt. Had I incurred no debt as I grew it would have taken me years to get to this size. I think the real answer is weather or not the debt pencils out favorably in terms as to how long it takes to pay off. 90-180 days is my limit.The second part of the equation is you need to watch how much you pay for the debt. Take new vehicles, I have friends that really dont even care what the price is, they only care about their monthly payment amount . This is a boom for car dealers because now they over-inflate the price of the vehicle and just extend the term of the loan. I think many vending companies and distributors do the same thing. If the vending machine and the debt is priced fair and the vending operator competent, then debt can be good.. Good post I agree Link to comment Share on other sites More sharing options...
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