When profits get squeezed, it's time to boost your leadership — not your debt.
A new client came to me with a common problem. His firm’s revenues had slowed to nearly a halt, while his overhead kept growing — leading to a nose dive in profitability. His proposed solution was to take out a loan. I told him that was a bad idea.
The key lesson here is: Don’t find solutions until you’ve figured out what caused the problem.
A benefit of first identifying the is that businesses tend to face the same problems. Consequently, the problems tend to be well known and well documented — as are potential solutions.
In the above case, the owner advisor was facing what I call a “growth barrier” — the point when revenue growth slows down while expenses continue to rise. This puts considerable downward pressure on one’s profits.
As many owners do, this advisor wanted to borrow his way through the barrier. While in rare instances that can work, typically getting a loan will only make your firm’s problems worse. Here’s why.