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  • Writer's pictureJacob Curtis

How to avoid the vicious, negative cash-flow cycle

True or false: The only way to start and run a quilt shop is with debt.

The answer is false. But if you’re like many other business owners, you might have trouble believing you don’t need debt to run a quilt shop. The truth is, you can’t run a business if you’re broke. And if your business is in debt, you run a higher risk of going broke when the next inflation, recession, and pandemic storm hits.

Now for a happier truth: You can learn how to run a quilt shop debt-free. Let’s walk through the tips for building a financially strong company so you can grow your quilt shop.

What Is a debt-free business? A debt-free business operates without creditors. There’s nothing complicated about it: no loans, no credit cards, and no lines of credit.

To understand how a debt-free business sets you up to win, look no further than the classic fable The Three Little Pigs. The hero of the story (spoiler alert) is the pig who built his house with bricks—not straw or sticks. In financial terms, those bricks translate to rock-solid cash. Watching the other little pigs cut corners so they could pocket more money and put out less effort probably wasn’t fun for the pig that built the house out of brick. But when the big, bad wolf came, the brick-house pig was the last one standing. All the huffing and puffing in the world couldn’t shake him or his house.

Like the brick-house pig, you want a strong foundation for your quilt shop—which means keeping it debt-free. When your shop is debt-free and strong, you’re strong too. You can keep a clear head and rise above fear, panic, and hysteria when bad things happen. Even better: You can take advantage of rock-bottom prices and amazing opportunities as others cut their losses.

The bottom line of The Three Little Pigs is this: Hard work pays off. Yes, the extra effort might be rough initially, but it’s worth it. You’ve got this! As you strap in for the long haul of running your quilt store debt-free, here are seven tips to get you started:

1) Plan your budget on paper, on purpose, before each month begins. The Profit First system and a budget are how you tell your money where to go instead of wondering where it went. Using a budget to look forward and a profit and loss statement to look backward gives you the full picture of what’s happening financially in your business.

2) Live on less than you make. Some of the worst financial advice you can get is to make a luxury purchase you can’t afford in the name of a tax write-off. Spending $10,000 to save $2,500 in taxes is bad business. Unless you truly need the item for your business, you have the cash to pay for it, and you’ll make money by buying it, just say no.

3) Don’t borrow money. That’s called debt, and it’s the opposite of living in moderation and staying within your means. How much debt is acceptable in business? None. Sure, it’s tempting to borrow money for what seems like a once-in-a-lifetime or foolproof opportunity—but don’t do it. When you have debt, you drastically increase your financial risk, and just one bad deal could even put you out of business. If you’ve owed the bank money before, you understand that the borrower is slave to the lender.

4) Use Profit First and avoid the vicious, negative cash-flow cycle. Cash-flow problems quickly spiral out of control when you borrow money you can’t make payments on or don’t set aside enough money to pay your quarterly taxes. You end up making more bad business deals just to keep the bank or IRS off your back. That’s why cash-flow problems are the main reason 51% of businesses fail in the first five years.

5) Make a three- to five-year plan to eliminate any debt you have. Following the Profit First system, use a percentage of your monthly profits to pay off your debts from smallest to largest. Following a budget will help you stay on track to pay off debt.

6) Save money. The money you put away is called retained earnings or profit, and it’s crucial for helping your business survive and prosper. Your profits can go toward emergencies, planned purchases, and investments in your business. And when you have cash savings, you can capitalize on those once-in-a-lifetime opportunities we mentioned earlier. That’s known as having margin or the power to jump on opportunities when they come.

7) Be generous. This is where the fun really starts. Even when your budget is tight and you’re working hard to get or stay out of debt, think of creative ways to share your products, services, and profits. Give to your team members, your customers, and even your neighbor next door. Giving keeps you energized and encourages a more positive company culture. It might even inspire others to pay your generosity forward!

Now you have a solid set of principles to keep your business in the black and debt-free. But you may still have some nagging doubts that could trip you up. I get it. So let’s debunk some myths many business owners struggle with and discover the truths that will really set you free.

Myth 1: I need to borrow money to start or expand my business. Can I run a business without debt?

Truth: You can run your business without debt. It just takes patience and the guts to do things differently (just like the brick-house pig). Most quilt store owners wonder, How can I fund my business with no money? But the truth is, many small businesses start pretty small—with $5,000 or less.

When you launch or expand your business gradually and move at the speed of cash, you lower your financial risk and minimize the impact of the mistakes you’ll make as you grow and learn. Moving at the speed of cash has another advantage too: It helps you pause and think. Using real money from your account activates the pain center in your brain, so you’re more likely to question whether you really need to buy those extra bolts of fabric or that big box of notions.

Myth 2: I need a line of credit to cover cash-flow fluctuations.

Truth: Cash-flow fluctuations are predictable when using Profit First and an accounting system. Almost every quilt store has seasonality. With good forecasting, budgeting, and savings, you’ll be prepared for your off-season and can provide your own line of credit.

Myth 3: I need a credit card to travel and shop online.

Truth: A debit card can do everything a credit card can do—including give you the same fraud protection—without the risks of carryover balances and massive interest rates businesses in debt have to deal with. Sadly, 17% of new small businesses report using a credit card to finance their start-up. And 53% of all small businesses report using a credit card to finance their business. Using your debit card helps you stay accountable to your budget and stay out of debt. Win-win!

Myth 4: I can’t make large equipment or real estate purchases without using debt.

Truth: You can’t afford to make a large purchase until you slow down, think, plan, and figure out the best way to grow your business. The following four options are the best ways to spend money on big-ticket items or services:

1. Pay cash (which may mean waiting while you save).

2. Rent the equipment or space this saves you from monthly payments you can’t afford and from buying more than you need.

3. Outsource it or use other people’s equipment and resources. For example, if you’re not an expert in printing, let a printing company do it for you. Save the hassle and the money.

4. Buy used, which might mean tolerating the ugly and the old. It’s okay to be scrappy and make do with fewer bells and whistles while getting out of debt or building your savings. Getting a great deal on some not-cute, paid-for furniture is better than losing your business because you can’t make the payments on something prettier. Slow and steady wins the race.

Enough myths. Let’s drop a couple more truths.

Truth: The big, bad wolf is out there. He’s coming for your business—in the form of new competitors, craziness in the economy, or some other storm you won’t see coming.

Truth: Debt makes you weaker, not stronger. Remember: The borrower is slave to the lender.

The final (happier) truth is this: You can survive the unexpected by working hard to get and stay debt-free by following the principles above. Even if you started your store with debt, it’s okay. You can become debt-free—one brick at a time.

Download my guide for destroying debt by clicking the link below.


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