The Business Debt Trap That Destroys Companies
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How did past bankruptcy shape the host's approach to business debt?
In my 20s, I built a real estate business on debt. It grew fast. It looked impressive. But then the bank called our notes. I went bankrupt and I got the opportunity to start over. So when I started this company, I swore no banker would ever tell me what to do again. I'm not going into debt. No borrowed money, no borrowed opinions from investors or bankers, no building a house of cards that could collapse the minute someone else got nervous. We were going to build it slow. We were going to build it solid because we're going to pay cash as we go. When you owe money, you don't fully own your decisions anymore. You start making calls based on what the bank needs, what the investors want. instead of what's best for your team, your customers, and your long-term goals.
So on today's episode, Entrez Leadership's head coach, John Falcons, is sitting down with Ramsey Solutions CFO, Jeff Williams, to talk about what it really looks like to scale a business without debt so you can stay in control and protect your business from bankruptcy. Let's get to it. Jeff, thanks for joining us today.
Glad to be here. Thanks for the invite. So CFO of the company. I'm wondering what you think when you see all these companies in the news going bankrupt.
Why does Jeff Williams argue zero-debt helped Ramsey Solutions survive crises?
Might be Radio Shack or Toys R Us or whoever it is. And all of them are way into debt. They're working off of other people's money. They're leveraging. There's all these strategies. But then we've got companies like our company, Ramsey Solutions, and zero debt. And then when the storms come, whether it be the economic crisis or COVID or whatever it is, they don't go out of business and they're not leveraging debt. What do you, from your perspective, take away from that? And when you sit with some of our clients in our coaching program, what's your advice to them about using debt?
Yeah, a lot of companies that you see, especially small companies that try to use debt, what they're saying is that they want to grow faster than maybe their cash flow will allow them to. And so to bridge what they have in cash to what they need to grow faster, whether it's another piece of equipment or buying another company or whatever it may be, They seek to bridge that gap with debt instead of just paying cash with it. Dave went through a bankruptcy in the late 80s. That's what started us on this journey that brings you and I here today. And so Dave's approach to business has been impacted by bankruptcy risk. He is intolerant of that. And lots of companies out there like us do that. And that's a choice that's made.
It doesn't mean you can do every single thing that's possible. But it does mean that you're not going to ever be in a place to where you have to worry of whether or not you're going to make payroll this week or whether or not you're going to be able to pay your bills, whether it's payroll or other bills.
How does operating ‘at the speed of cash’ change company decision-making?
Growing at the speed of cash is not for everybody, but it is for us. And whenever those downturns happen, we're probably still sitting flush with cash and we're not as worried about it. Whenever I first became CFO, I asked the gentleman that I was replacing, I'm like, what is the most important role of the CFO? And he looked at me and he said, don't ever run out of cash. And that was a company that was laden with debt and he had the same message that Dave has here and that we would encourage all of our Entrez leadership clients to do. You don't have to grow as fast as the one down the road, but you can be smart whenever you're making those decisions because once you go down the path of taking on debt, you're giving up some of the control in the decision making that you wouldn't give up otherwise.
Yeah, you and the bank start to get to be partners.
They impact the decision-making that you'll make until the loan's paid back because they're going to put covenants on you or they're going to put handcuffs on you to where you can't do certain things because they don't want you to file bankruptcy. They want to get their money. Yeah, that's not good for them.
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Chapters
8 chapters
1
How did past bankruptcy shape the host's approach to business debt?
0:05–1:28
2
Why does Jeff Williams argue zero-debt helped Ramsey Solutions survive crises?
1:28–3:09
3
How does operating ‘at the speed of cash’ change company decision-making?
3:09–6:40
4
What freedoms and costs come from not having bank debt?
6:40–9:45
5
Is there a downside to growing only with cash and not using loans?
9:45–12:05
6
How should a business owner aggressively pay down existing debt without risking operations?
12:05–14:27
7
Should companies prioritize debt payoff over retained earnings and profit sharing?
14:27–15:00
8
What practical next steps can owners take to build a debt-free business?
15:00–15:32
Speakers
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