How to Use Debt Strategically

In this special 100th episode of Beyond Margins, host Susan Boles delivers her first solo discussion on utilizing debt thoughtfully to fund service businesses. Drawing from her experience as a fractional CFO, she explores the benefits and strategic uses of debt, shares real-world examples, and provides practical tips for business owners facing cash flow challenges or looking to seize growth opportunities.

• (00:00) - Introduction to Business Funding Options
• (00:37) - Celebrating 100 Episodes: A Solo Special
• (01:51) - Understanding Debt as a Strategic Tool
• (03:28) - Real-Life Examples of Strategic Debt Use
• (04:57) - Mid-Roll Ad
• (05:39) - Choosing and Managing Debt Wisely
• (07:30) - Planning and Managing Debt Repayment
• (09:24) - Final Thoughts and Upcoming Topics

Creators & Guests

Host

Susan Boles

Speaker, Podcaster & Consultant at Beyond Margins | 15+ years of experience as both a CFO and COO

What is Beyond Margins: Build a calmer business with comfortable margins?

Can you build a business based on… “calm?” On Beyond Margins, host Susan Boles looks beyond the usual metrics of success to help you build a business where calm is the new KPI. With over 15 years of experience as an entrepreneur, CFO, and COO, Susan shares the business strategies that lead to a business with comfortable margins—financial, emotional, energetic, and scheduling margins. Join her and her guests as they counter the prevailing “wisdom” about business growth, productivity, and success to provide a framework for making choices that align with your values and true goals. Episode by episode, you’ll get a look at the team management, operations, financials, product development, and marketing of a calmer business.

Susan Boles: 00:02

How you choose to fund your business can have a big impact on what your business looks like and feels like to run. Taking on investors means losing some control and ownership over something you've built. Crowdfunding takes a big investment of time and a decent chunk of money. Grants are time consuming to research and apply for and ultimately may not end up providing any capital at all. But debt is something you can access pretty easily and quickly, and when you use it thoughtfully, it can be a really powerful resource to fund your business.

Susan Boles: 00:37

I'm your host, Susan Boles, and this is Beyond Margins, the show where we geek out about building a calmer business and right now, about how to fund your service business. Today, I wanna try something a little different. So this is episode 100 of Beyond Margins. And in those 100 episodes spanning the course of 6 years, I've covered a lot of topics and interviewed a ton of amazing guests. I took a 6 month sabbatical that turned into 2 years.

Susan Boles: 01:05

More about that in episode 94 if you're curious. I renamed and rebranded the show, but there's one thing I've never done. Not in 99 episodes. And that's a solo episode where you're just gonna hear from me. I wanted to celebrate my 100th episode with just that, and to have some fun playing around with the format a little bit.

Susan Boles: 01:26

So today, it's all me. And we're continuing our discussion about accessing funding for your service business. We've already talked about equity funding or taking on investors with Ida Henrys, and I geeked out with Lena West about the downsides of equity funding and why crowdfunding could be a viable option. So if you missed those 2 episodes, go back and check them out because they were so juicy. Today, we're talking about debt and how to use it strategically in your business.

Susan Boles: 01:55

And given my day job as a fractional CFO, this is something I talk about with just about every client

Susan Boles: 02:01

I have, especially this year.

Susan Boles: 02:05

Now for many of us, the word debt might carry a negative connotation. We've been taught to avoid it like the plague, to pay everything off as soon as possible, and to see it as a last resort. But debt can be a useful tool, just like any other resource you might use in your business. It's also the form of capital that service businesses usually have the easiest time accessing. Sure.

Susan Boles: 02:28

Debt, like anything else, when used in excess can be a bit of a problem. But if you're thoughtful about how you use it, it can be a very powerful tool to help your business grow. It's not just about borrowing money. It's about using that money to grow your business in a sustainable way. Now there's 2 primary reasons you might consider taking on debt in your business.

Susan Boles: 02:50

1st, to get you through rougher business seasons, and second, to fund strategic growth. This year, many consultants and agencies have faced rougher seasons. Sales pipelines are quieter, deals are taking longer to close, and cash flow is tight. And that can be a pretty scary position to

Susan Boles: 03:08

be in, especially if you don't have

Susan Boles: 03:10

a decent cash cushion to fall back on. When you're scared and panicking about what to do next, it doesn't feel calm. Plus, no one makes great decisions when they're in panic mode. But this can be a great use case for taking on some debt temporarily to get you through those tougher times and to carry you through. Let's take the example of Anna who runs a small marketing agency.

Susan Boles: 03:32

This past year, like a lot of folks, Anna had a pretty big dip in client projects. She works mainly with tech companies, and the layoffs and restricted budgets in the tech industry meant that she didn't have as many projects coming in as she normally would. Her cash flow was suffering. She was worried about making payroll. But instead of panicking, Anna decided to take out a short term line of credit to cover her immediate expenses.

Susan Boles: 03:57

This allowed her to keep her team intact and focus on landing new clients without the constant stress of cash flow issues. So within a few months, her agency was back on track, and she was able to

Susan Boles: 04:08

pay off that line of credit. Anna was able to

Susan Boles: 04:11

use some temporary debt to get her through, and that's a great example of using debt strategically when times are a bit rougher. Or we could talk about Jason, who's the owner of a small IT consulting firm. Jason's business was growing steadily, but he needed to hire additional staff to take on larger projects. However, he didn't have enough cash on hand to cover the salaries for new hires. Jason decided to take out a business loan to finance the hiring of 2 new employees.

Susan Boles: 04:40

That allowed him to take on bigger contracts, which in turn increased his revenue. And with that increased revenue, he was able to pay off the

Susan Boles: 04:47

loan ahead of schedule. And Jason's story highlights how using debt strategically can enable you to seize growth opportunities that you might otherwise have to pass up. One of

Susan Boles: 04:58

the foundations of running a calmer business is having comfortable margins, and debt can be used as a resource to create some of those margins. You can use debt to fund salaries for new team members, to create growth and build capacity margin for existing team members. You can use debt to create some margins in your bank account when you're running out of cash. You can use debt to fund a much needed leave

Susan Boles: 05:21

of absence and give yourself a rest. Really, debt can be a tool for growth, a tool

Susan Boles: 05:26

for crisis management. It can be really whatever you decide to use it for. But in order to use debt as a tool to build margin and to make your business feel calmer, you need to be very thoughtful about taking on that responsibility. When you're considering using debt to fund your business, there are a

Susan Boles: 05:42

few things you should be considering. First, you need

Susan Boles: 05:45

to have a really clear understanding of why you need the debt. Is it to cover short term cash flow gaps, to expand your team, to fund the development of a new service or a new program? Understanding the why will help you be able to choose the right type of debt for your needs. When it comes to taking on debt, not all debt is created equal. Lines of credit can be great for short term needs or to fund seasonal cash flow gaps.

Susan Boles: 06:13

They're designed to be used for surges, so you can take a little bit of debt, pay it back quickly, and then use the line of credit again. That line of credit could be just your business credit card, where you choose not to routinely pay off the full balance each month and carry a bit of a balance, pay a little bit of interest on it. Or it could be something bigger, like an actual line

Susan Boles: 06:33

of credit from a bank. But if you need

Susan Boles: 06:36

to fund longer term growth, like hiring staff members or purchasing equipment or investing in the development of a new product, something like a term loan with fixed monthly payments might be your best option. And if you don't have access to a traditional line of credit, a credit card, or a term loan, whether that's because you haven't been in business very long or your personal credit score isn't all that strong or you just don't have the revenue to support that funding, there are other, frankly, more expensive debt options like invoice factoring. And that's basically where a company buys your outstanding invoices, takes a percentage of that income, and then advances you the cash. You could think of it kind of like a payday loan for your business. It's not a great option.

Susan Boles: 07:18

It's pretty expensive. But if you're really in a cash crunch, it can be a necessary tool. So when you're thinking about using debt to fund your business, really consider what type of funding you really need. Once you decide on what type of funding you're looking for, you need to have a clear plan for how you'll repay the debt because this is where there's potential to get into trouble. Some debt options have terms that mean you'll have a huge repayment coming quickly, and you really need to make sure that your business can handle servicing, meaning paying back the debt.

Susan Boles: 07:52

So it's important that you understand your cash flow so that you can make sure you can meet the repayment terms of the debt without putting too much strain on your business. If you're deciding to bring on debt to create value or fund growth in your business, it's important to understand what the real world potential is of that value. I personally always like to be very conservative when estimating growth or an increase in revenue, and I expect it to take way longer than I originally think to actually generate that revenue. So if you are building out a projection, give yourself a lot of cushion. Once you've taken on debt, monitor your financials closely to make sure that you're on track with your repayment plan so you can adjust the plan if

Susan Boles: 08:34

you need to. And if you're lucky enough to be

Susan Boles: 08:37

in a really great place financially right now and you don't need additional funding right at this moment, it's still something to consider putting in place. Getting a line of credit to use when you need it is way easier when things are going really well than when you really need it. So one of the unfortunate ironies of the financial system is that banks are happy to give you money when you don't need it. But when you do, it can be incredibly difficult to access. So you might consider getting a line of credit now to give you access to a bigger cash cushion if you need it down the road.

Susan Boles: 09:11

The ideal situation would be to have a comfortable cash cushion and access to

Susan Boles: 09:16

a line of credit so that

Susan Boles: 09:17

you have lots of flexibility to manage cash crises or to fund growth when you need it. Using debt in a thoughtful way can be one the easiest and most accessible ways to get some additional funding to run your business, whether that's for cash management or to fund growth. But it's important to use it wisely and to have a clear plan in place. Debt isn't right for every situation, which is why I've been talking about lots of other options like taking investment or crowdfunding, or in the next episode, we'll be talking about using grants as funding. But debt is generally pretty accessible.

Susan Boles: 09:52

It's usually one of the quicker ways to access outside funding, and it allows you to maintain decision making power and control in a way that something like equity investments won't allow. So it might be the right choice for you. And as long as you use it thoughtfully, it can be a powerful tool to help you run a calmer business. Next time, we're wrapping up our discussion of funding types with a chat about how and when you might think about using grants as a source of funding. So hit subscribe in your favorite podcast player so you don't miss it.

Susan Boles: 10:25

How'd you like this episode? I'd love to hear what you thought about the solo format. Do you wanna see more of these? Did you hate it? I'd love to hear your feedback.

Susan Boles: 10:33

Just click the link in the show notes. You can send me an email or leave me a voice mail, and let me know what you think.