Sunday, October 25, 2009

What Makes Businesses Fail Financially

via Trizle by The Trizle Team on 10/25/09

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  • Why did companies fail during the 2008 financial crisis?

It went like this:

  • Loan mofo: "We want our money!"
  • Leveraged mofo: "We don't have money!"
  • Loan mofo: "We will kill ya"
  • Leveraged mofo: "OH NOOOOOOOOOOOO!"

When the economy tanked, companies that failed had loans that they couldn't repay.

What Will Make You Fail

Debt -- especially the long-term ones with variable interest rates -- will suck you down, and will be the main cause of your impending failure.

  • Google avoids long-term debt.
  • Microsoft avoids long-term debt.
  • Apple avoids long-term debt.
  • Walgreen's avoids long-term debt.
  • Any company with great financials = no long-term debt.

Unless your main line of business is providing loans (i.e., you're a bank), leveraging your company = NO GOOD.

(The banks that died over-levered themselves.)

Instead, ask yourself this:

"What if we could get money for free?"

"BAM DANG SON HOW AN I DO THAT?!?!?!!" you're asking.

Raise it.

  • "No! You shouldn't give away your equity! Boo!"
  • "You work so hard! Investors are sharks!"

The points:

  • Equity financing (i.e., raising money from investors) is free money with no interest rates (i.e., helps you grow much quicker).
  • Avoiding interest costs puts money back into your business to reinvest, and grow exponentially stronger financially.
  • You can always buy back the sold equity.

Solid businesses perform financially awesome to the awesome to the max avoid long-term debt.

  • When you: (1) avoid debt, and (2) keep raising money = YOU WILL NEVER FAIL HIGH FIVE

No debt.

Posted via email from Ranjan's posterous

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