EntreLeadership - #381: Debt Is Never the Answer with Dave Ramsey

Episode Date: June 29, 2020

While many people stubbornly subscribe to the you-have-to-borrow-money-to-make-money philosophy, Dave Ramsey knows that idea is just a bold-faced lie. And he learned it the hard way. Forced to file bankruptcy in his twenties, Dave started over from scratch and has since built a multimillion-dollar business the only way he knows how: at the speed of cash. That’s right, over 25 years later and now with a team of nearly 1,000 people, Dave is—and has resolved to remain—debt-free. Tune in to hear Dave explain why debt is never the answer, no matter how tempting an opportunity may be—or how dire the circumstances (we’re looking at you, COVID-19).   entreleadership.com/podcast Dave Ramsey's website EntreLeadership by Dave Ramsey EntreLeadership's coaching programs The Infinite Game by Simon Sinek Ask Dave Ramsey and Daniel Tardy your question on The Dave Ramsey Show: Email The Dave Ramsey Show Put "Small Business" in the subject line Include your phone number and question in the body of the email 6 Financial Reports That Can Save Your Company Review this episode for a chance to win a $25 Amazon gift card   As an Amazon Associate EntreLeadership earns from qualifying purchases.   Want expert help with your business question? Call 844-944-1070 and leave a message or send an email to [e-mail]. You could be featured on a future podcast episode! Learn more about your ad choices. Visit megaphone.fm/adchoices

You've probably heard that you need to borrow money to make money. That debt is necessary if you're going to grow your business and that every great business understands that debt is just leverage, but you've been lied to. From the Ramsey Network, this is the Entree Leadership podcast where we help business leaders grow themselves, their teams, and their profits. I'm your host, Alex Judd, and today we have the founder and CEO of our business, Dave Ramsey, to set the record straight on why borrowing money is stupid.

And as with everything, Dave teaches this perspective isn't one that is just informed by theory. It's informed by experience. Well, in my 20s, I believed what a lot of people believe, that you'd borrow money to make money. I got a degree in finance and the power of leverage and the simplistic formula that if you borrow at one interest rate, 5%, 4%, and you reinvested and you make 10 or 12% that you're making the spread. That is simplistic and primitive and wrong, but I believe that. Lots of people quote that to me on Twitter. But to show how ignorant I am that I just don't understand the power of leverage. But I do understand the power of leverage.

And, you know, I bought $4 million for the real estate by the time I was 24 and 25 years old. And I bought it right. So I had a net worth of a million dollars, which means I only owed $3 million on the $4 million. And I was making a couple hundred thousand dollars a year flipping properties and doing things. But leverage is a two-edged sword. and people never talk about the other edge of it. It only works when it works. Morrowing money only works when it works.

And so what happened to us was we went broke because the bank called our notes and we didn't have any liquidity. We didn't have any money. We weren't laid on the notes. They just panicked hysteria, tax climate that we were in, the presidential climate that we were in,

and called, you know, looked around us on, I had 90-day short-term notes for flips and they called them. So we spent two and a half years losing everything we owned. Well, in that process, I had an existential crisis, you know, that everything that I believed evidently was wrong. Yeah. And so I went through this whole thing of my intellect being crushed and questioning. And as a Christian, I met God on the way up.

I got to know him on the way down. And so I started studying biblical finance. And I found the borrower is slave to the lender. And I found 100% of the references in the Bible to debt are negative. And so as a believer, that puts a challenge. against your finance degree. Yeah, no kidding. And you go, okay, somebody's wrong and somebody's right because they're two polar opposites.

And you can't just say, well, you know, sometimes. Well, it's not sometimes in the Bible. And it's all the time in the finance classroom that you borrow. And so I had to really, it took me a while. At first, I was in a position that I just bought it based on my faith. I just said, okay, I don't borrow money. God said don't borrow money. I don't borrow money, period.

And then over time, I've started to understand the intellectual reasons for that, the mathematical reasons for that. And so I don't borrow money. Basically, when you borrow money, you increase risk. And when business people say, I can borrow $500,000 to buy this piece of equipment, they do not ascertain risk. They say I can borrow this money at 6% and I can put the piece of equipment to work and I can make 12 or 14% on my money. But that's only if everything goes perfectly as it did in your head and it never goes perfectly in business. You know, about 90% of my ideas that I think are brilliant that I bring to the market to suck. And when I borrow on them, it destroys my life.

It doesn't work. But I think this is a pretty, everyone sees you as the guy on the cover of the book cutting up the credit card and the guy that's yelling at people for taking car payments. But we don't always address the topic of debt for business. What you're saying is that the same principles apply to how you run your business as how you run your personal life. Absolutely. And if you want to look at it through the faith lens, you can't find it in scripture. If you want to look at it through an intellectual lens, let's actually do real math in a real business case. Okay. If you get a finance degree and you get licensed in securities like I have been and you've been in that world, we know in that, we know in

that world that we do not compare a high-risk mutual fund apples to apples with a low-risk mutual fund. There is a measure of risk mathematically. It's the height of the valley, the height of the mountain if you graph it. If you see the waves in a graph in your mind right now, the ones that are straight up and straight down have a higher beta. A beta is a mathematical, statistical measure of risk. Okay. And so we know that you can take the beta, drop it under the line, meaning an inverse mathematical formula and being a little complicated here. Yeah. But the point is you can intellectually look at this and go.

So when you add risk, when you adjust for risk, you can compare these two mutual funds, apples to apples, by putting the beta under the line. Yeah. Inverse relationship. So you're adding risk into your math formula so that you can accurately look at the situation. Most people, 98% of the business cases that entree leaders have brought to me. and supposedly sophisticated people who criticize me on blogs, they do not have any measure of risk in their formula.

They're not saying, what happens if this happens? What happens if there's a move in the marketplace? What happens if a customer doesn't pay me? What happens if it doesn't sell like I think it's going to sell? And it can be something as simple as a guy borrowing $90,000 to buy a dump truck, and it's going to work out. I'm going to haul a lot of stuff with this dump truck. Well, he can't get loads.

Fuel prices go up. insurance prices go up. He has a wreck. He doesn't think about any of those things. And so he says, I'm going to make money by borrowing money. But there's no mathematical measure of risk in that formula. And when you insert risk into your leverage formula, the benefits of leverage go away. They dissipate. So it turns out we can mathematically prove that God was right. So shocking. Yeah, there you go. I mean, that's what it comes down to. So I presented this to a bunch of MBAs at Vanderbilt. I spoke to an MBA group over there, and they were looking at me like German Shepherds. Oh, that's what I was going to say. blew their mind because nowhere in

academia does anybody talk about this. Yeah. So, I mean, it is, you use the term all the time on the radio show. It's weird, right? It is not normal. So can you describe what is normal today, crystal clear? What is normal for business with regard to this issue? 38% of small businesses are operating their line of credit on their credit card. That's insanity. that's not just stupid that's insanity the rest of businesses have assumed and they've believed these things it takes money to make money OPM other people's money everybody borrows money in business Ramsey you just don't understand and all this whining and rationalization that some of you listening

to this are doing you're pitiful you're just pitiful and so bottom line is this if you will grow slower and with organic cash, you will stay in business. And you will grow your business steadily over time. You will make more money and you will not take five steps back. It's kind of like the old game we used to play when I was a little kid, Mother May I. If you didn't ask permission to take steps forward, you got to take penalty steps back. And when you borrow money, you get to take penalty steps back. You had volatility to your life.

You had anxiety to your life. You had stress to your life. And, you know, the number one reason businesses fail in America today is cash flow problems. Cash flow problems are caused by two things, mishandling your taxes and debt. What do you say to the person that sits back and they say, well, you're sitting in a $70 million building, a $250 million organization, 900 team members, easy for you to say. That's how I got here. Started on my card table. Shut up.

So we were debt-free from the beginning. Is that correct? I never borrowed a dime on this, ever. It has cash flowed everything we've done. We leased that other building over there 18, 19 years ago, and I took a lease option on a $5 million building. I had never seen $5 million. There was no chance I was ever going to be able to option that. I had a five-year option to buy that building.

And we leased two of the four, or one and a half of the four floors and took options also first ride of refusal so we could grow. Yeah. So as other people moved out, we moved in. Leasing, leasing, leasing, leasing. We were a tenant. we don't borrow money. And about the time we filled that building up and ran the rest of the tenants out, we were coming to the end of that five years.

And I just, God, if you want me to have this building, you're going to give me the money because I don't borrow money. And, you know, we scraped out the nickels out of the corner of the couches. And by them, by the way, the building was worth about $12 million. And to close on it at $5 million, we'll be like, yeah, my mic drop, right? That's right. So I'm dying to do it, but I'm not borrowing money. So there was this little bit of angst there.

Yeah, no kidding. Making me, because I'm a real estate guy. I really, really wanted to do this deal because I'm leaving $7 million on the table if I walk away from this option. But I mean, we right under the wire and got it closed and barely, just barely. I still own that building today. But here's the thing, in 2008, when everything stopped. Yeah, that's right. You know, when they close up everything for the coronavirus and you can't do business,

when they close up everything for the tornado and you can't do business, when they close up everything for the hurricane and you can't do business. And by the way, you don't control those freaking things. Those are outside variables that come at you. The only thing you can do is be ready when they get there. And the way you're ready when you get there is you don't have any payments. Very difficult to go bankrupt when you don't have any debt. That's right.

Was it a decision from day one? Like, did you know when you were starting the business, we are a debt-free business and we will be like that from the beginning of time? or how did that decision progress? Because I'd gone broke and I was starting from nothing and I had adopted these biblical financial principles. I don't borrow money, which would mean that my business doesn't borrow money

because I would have been borrowing the money. So just because you walk it over there and put it under a business hat doesn't mean it's not any different. 98% of the people listening to this podcast when they say I have business debt, that's a lie. You personally signed that. That's right. You personally guaranteed it.

You have personal debt that you call business. business debt. And so they're held personally liable for it? Absolutely. Absolutely. Unless you've got a $20 million, $30 million company, there's no banks loaning you money to that business. They're loaning you and mama money and they're taking a second mortgage on your dadgum house. SBA loan, right? Yeah, that's right. This is what's really going on. Okay. And so you had decided that you were not going to go into debt to build this business cover. Can you speak to the value of having that decision made from the beginning. Yeah, once you've got your values in place, most of your decisions are already made.

You just have to figure out how to live in that world then. Because what happens from that day forward to this day, this morning here, this morning, I've got a project I want to do. I don't have the money to do today. Right before I walk down here to do this podcast, I'm looking at a deal. It's got zeros on it. I don't have the money. So what's that make me do?

I got to do it later. I got to not do it. I got to change how we're doing it. But in no case, am I going to end up in debt to do that deal. It's a pretty good deal. It's a pretty good deal. I'm kind of excited about it. But that is so different than a lot of times the mindset we see business owners operating with on masterminds or people that we coincide with because people often leave themselves up to the winds of opportunity or of crisis. And they always keep the loan or the line of credit at arm's reach just so they can. But it sounds like what you're saying is it's not even a temptation. We have decided.

I mean, if I borrow money, it would be such a damaging thing to our reputation to start with. But I'm just not going to violate it because it's worked. That's right. It's 100%. You know, my pastor used to say, a man with an experience is not at the mercy of a man with an opinion. And so everybody's got opinions about this stuff. Let me just tell you, there's no situation that you use debt that if things don't go well, that it turns out okay.

And in business, sometimes things don't go well. And we've done projects, you know, we lost $278,000 on a project. Yeah. You know, and to me, I'm from Antioch, Tennessee. That's like a lot of money, you know, and, but we were, you know, we were funding it as we were going. The stupid thing just didn't work. And I just pull the tent stakes out of it, fold it up, pack it away in the memory

drawer, stuff that sucked that I tried, right? And you know what? It hurt, but if I still paying payments on it today, it would hurt twice as bad. That's right. You're going to make mistakes. You're going to launch stuff that fails, and the debt on it is going to put you out of business. It's going to take away your dream and turn it into a nightmare. Grow slower.

Be on the cover of Slow Company magazine. Grow slower. Is there a specific moment or a specific story where you remember sitting back and saying, thank God we didn't borrow money because that would have blown up in our face? almost every mistake because what happens when you borrow money, you do whatever you're getting ready to do bigger and you do it faster. That's right. And so the amount of money that you lose on a mistake is always magnified when you borrow

because you do it bigger. Yeah. You know, I'll order some more of those, you know, and then they don't sell and they're in the dumpster. What was the story? Was it Chick-fil-A that y'all were making those children books for? Yeah. And, you know, we violated a trademark in one of them.

That you could have never expected. I had no idea. Space Camp was trademarked. And we violated, you know, we had a book called Space Camp. And not only we violate the trademark, we made fun of this mythical, what we thought was a mythical space camp, but turns out there was one. And so we had to pull the stupid things off the market. And, you know, if any of you out there that are in the business like where, we buy printing, you know, books or workbooks or whatever, anytime you're buying printing, the more of it you buy, the cheaper it is per unit. Yeah.

And so, you know, if you got a big hit, you load. up. And so we get ready to do a Chris Hogan book. You know, we buy 100,000 copies to put them out there because we know we're going to move two or 300,000 in almost every case. And if we get a big hit, we'll move a million of them. But if you're going to borrow money, you could order 500,000 and then end up selling 100,000. And so it turns out your per unit cost of the ones you actually sold will kick your butt. And you got payments on it, you know, and you got stress and you can't make payroll and you got anxiety. Nothing works in business like you think it's going to.

Everything takes twice as long, costs twice as much, and you're not the exception. Those are the three rules. And so that's why you move at the speed of cash. You don't do anything else. We move at the speed of cash. Everything is at the speed of cash. And it just gives us incredible peace. And so, I mean, we have things we get frustrated with and things we push against that don't

work. We have things, we're normal business people. I mean, we're always trying something that we go, God, you look back on it, man, I was stupid. What was I thinking? All of us have had those thoughts that run businesses. But if you don't have payments on them, it hurts less. Yeah, that's right. Okay, so before we get to the practicality of how to actually operate and run a debt-free business,

I think probably listening to this, and we've already addressed this a little bit, but it's probably a lot like the listeners to your radio show. You've got the people that call in and they want to call in and argue with you sometimes. Pretend you've got one of those people in front of you right now, or you've got them calling you on the phone. How do you respond to the person that wants to argue with you about this? A hundred percent of the time that you're borrowing money, you're borrowing it on assumptions. You're sitting on your assumptions.

And when you sit on your assumptions, you're always going to have a problem. Because the only set of assumptions that borrowed money turns out is if everything goes exactly like it's supposed to, which is a dump-up way of looking at the world. because it never goes the way it's supposed to go. Nothing goes the way it's. You know, people ask me all the time, did you ever have any idea? Crab, no, I had no idea. I had no idea how much work this was going to be. I had no idea I was going to have 934 people.

I had no idea how some of those people were going to misbehave. I had no idea what great joy some of them were going to bring me. I had no idea the things that we were going to try were not going to work 90% of the time. We've made all of our money in brand penetration on about 10% of our ideas over 30 years of doing this business. The rest of it is trash in a drawer and embarrassing. And if you borrow on all of that, dude, you are going down. You're not going to make it. Well, you don't understand.

It's the only way I can get started. No, it's not the only way you can get started. You don't need a food truck until you've been a caterer out of your kitchen. You don't need to go $250,000 in debt to buy a dadgum truck with a grill on it. Oh, my God. Unbelievable. Okay. And you never grilled anything.

You just hate your job and wanted to start a restaurant. And you thought this is the way to do it. No. No. I mean, grill something and sell it to somebody. Grill some more and sell it to somebody. Go rent the backside of some restaurant on the weekday when they're closed and use their stuff to move up a notch. Do in-house catering, in-house catering, in-house catering, in-house catering, learn to sell food and make food before you start going, I'm in the restaurant business, which has the highest failure rate of any industry, by the way. I love that example because you're highlighting the fact that you are not. encouraging people not to start a business. That's not what you're saying. You're saying start it the right way and iterate as you go. Be willing, listen, don't despise small beginnings. I started selling books out of the trunk of my car and it was operating out of my living room and it was off a card

table. It was actually a Sam's folding table, but I mean, still a car table, right? And so don't despise small beginnings. You don't have to walk in looking like you know what you're doing when you don't. Why don't people do that naturally? Because of pride. I'm going to say I got this and I just started my business and instead of going instead of getting dirt under your fingernails and go over there and crawl before you walk, you know, scratch and claw and get some stuff done. You know, we saw those little blue financial piece books out of the trunk of my car. They were stacked in my living room. I didn't even rent an office. You know, I mean, we didn't, we didn't have the money.

We made the books sell. We made the business model work. We proof texted it in the marketplace. I didn't even know that's what you called it, but we did it. And we walked out, we walked out, we did a little bit. And then we made a little money and we put it all back in. Yeah. We made a little more money and we put it all back in.

We made a little more money and we put it all back in. And every time we put it all back in, some of it worked, some of it didn't, but more of it were enough of it worked that we made profit. And every time, you know, Sharon and I lived on nothing. And we just rolled it back into the business. I don't want you to not live your dream. I don't want you turned your dream into a nightmare. Yeah.

And you don't know what you don't know until you've done it. And so get out there and proof text this stuff, meaning prove your idea in the marketplace. Make people give you money for your idea. They're called customers, not theories. Let's talk about the other person that is listening to this right now or that calls into you. And they are willing to be coached, but this is rocking their world. And they have never looked at business from this perspective. And they say, okay, but I've got debt on my business.

Where do I even begin, Dave? If you've already got debt on your business, then you develop a game plan to pay it off. Okay. And so there's two things that businesses have to have to survive long term. Zero debt and piles of retained earnings. Business version of an emergency fund. Okay. And so how do we build those two things?

Well, you need to quit taking all the money home from the business. And so what we tell folks is figure out what your living wage is if you own the business. what do you need to take home to survive. Yeah. No, no fancy cars, no luxury items. You got debt and no money. Okay. So let's call it 60,000 bucks. Okay. So you're going to put yourself on a $60,000 salary in your profit and loss statement. Then that creates after you are paid your $60,000, what profit comes to the bottom line. When that profit comes to the bottom line, put the lion's share of it on debt and some more of it over into retained earnings. So let's say you paid yourself $60,000 and this month $10,000 came to the bottom line, put eight of it on the debt and put two in the bank.

Okay. You know, 8020 or 7030 or 8515. I don't even some ratio like that, 90, 10, I don't care, how fast you want to get out of debt. But put the bulk of it on the debt and yet still save some money. That's different than we teach. That's what I was going to say. That's not rice and beans, beans and rice necessarily. Well, it is because you're not really taking any luxuries out of the business.

Okay. A lot of people are used to live a little higher on the hog out of the business. and you cut that back to where you can alleviate this, in quotes, business debt that you personally signed for by hammering it with the lion's share of the profits. Meanwhile, you're setting aside some cash. Now, what's that cash do? That cash gives you the, you become your own credit line. So when there's a flex and there's a problem and a receivable doesn't come in, you can make payroll. And you can use that cash to buy stuff that you used to go into debt to buy.

Okay. And so we're funding out the other side. so we can keep growing the business and keep the business surviving with that retained earnings portion, that 2,000 out of 10,000, the other 8,000 thrown at the debt, and then beat that debt up, and a lot of businesses are out of debt in three or four or five years that way, even if they got millions of dollars of debt. I've seen it done lots of times. I had a friend that had a big, big new car dealership in a major city.

It was a big operation, and he became convicted in his spiritual walk that the Bible said don't borrow money. It wasn't Dave Ramsey talked him into it. In other words, it was God. And so he just said, out of every car we sell, here's what our margin is, and we're going to set aside this much. And pretty soon he looked up and half his floor plan was cash. The other half was financed and a little bit of time. And here's what's interesting. He started buying differently.

He was buying a little more aggressively from the manufacturer. He was keeping too much stuff on the lot that didn't turn well. And he started being very selective when he started using his own money for his inventory. And his inventory got smarter. Plus, his inventory didn't cost anything because he didn't have interest cost on that inventory. It makes you a better business person. It makes you think when you spend your money instead of the bank's money, you are more diligent. Every one of us are.

That's right. Okay, so you talked about retained earnings and setting some of that aside every single month. What are you looking at in terms of operating expenses to feel really, really good about having that emergency fund for the business? I think if you could ever get it there, it'd be awesome to have six months of cash. Yeah. If you had six months of operating cash, you'd be cash flush. We have never gotten there. We don't have that because we grow so fast that the nut we're trying to crack is bigger.

You're trying to constantly catch up. I've got millions of dollars in retained earnings, but I don't have six months to operate a $200 million company and retain earnings today. I wish I did. There'd be a lot of money. But, I mean, we've got several months. But every time we think we're about to get there, the size of what we're doing increases payroll mainly. We're hiring 300 people a year. So it's hard to catch up with that adds to what the monthly number is.

That's right. That's right. So we've always grown faster than we've grown retained earnings. But we've grown retained earnings respectively so that we're not in, we don't get in trouble if there's a freeze in the economy, temporary due to something. It seems like a lot of times where people get trapped by this idea that I need to take out a loan or I need to get a line of credit is between those stages of business. So we talk about treadmill, pathfinder, trailblazer, and a lot of times people will be on their stage and they'll plateau and they think that the answer to get to the next stage is, I need more cash flow. I need more money and it's got to come from the outside. I see it three times.

One is there. I see it at the treadmill when you're starting. That's right. I can't start. You can't start with nothing. Everybody knows that. Absolute crap. I did it.

So shut up. So, you know, you have to have this piece of equipment or you can't operate. Yeah. Bull. Okay. Rent it. Outsource it. Figured out as a treadmill. The second time is when you're on that stage and you feel like you plateaued. You feel like you're stuck. Yeah. And what you have there is not a finance problem. You have a business model problem. Explain that. What got you here won't take you there is what the problem is. You've been doing it this way and it got you to this point, but you're going to have to break it before it's broken. And you're going to have to change. And you're going to have to change. change the way you're looking at this? Is there a different way to deliver? Is there a different pricing model? Is there a different collections process that you're going to use to change your cash flow problems? You can get to a certain point, but at a certain volume, then you've always got to shift your business model. We've shifted hours around here 28 million times. It feels like.

All we do is change stuff because you bump up against the ceiling and the way you're doing it, analog instead of digital. The way you're doing it, it can't get any bigger logistically. You just can't get it done. An example, a simple example of that. Okay, let's say when I first started, I was doing one-on-one coaching. Yeah. Now, there's only so many hours in a day. So if I'm charging $200 now, I fill up all my hours, six weeks out. That's all you can make. That's it. I hit a plateau. And so I got to borrow money to hire people. Maybe not. Maybe I need to think I need to diversify my product line. Maybe coaching is not the only thing. Maybe I need a class and some books. And maybe I need a broadcast process that actually makes money. That's what

happened to me. That's right. I went from coaching to those things in the early days because I hit a, I hit a ceiling with the business model, the way it was designed. I had a logistical analog blocks to it and it couldn't scale anymore. What got me there wouldn't take me here. And you have to break it. You have to sit. Look at that. The other thing I see is, is, and this is the most dangerous of the three. Yeah. And I see it all the time, and you guys doing coaching as well. Everything's going along, and you look pretty smart, and you are pretty smart, and you're doing this stuff the way we're talking about doing it.

And here comes the dream deal. That's right. The biggest customer in the world, and I can triple my business with this one customer. And it will never come around again. This is my only shot. If I miss this, oh, it's like, oh. The clouds opened up, right? The sunbeam came down, and this must be from God.

It's not. It's from the devil. Okay? I'll just tell you. It's from the devil. It's temptation. It's the temptation of life is what it is. And the only way you can take on this customer is you've got to borrow money to upstage your equipment,

3x of what it is, upstage your payroll, 3x of what it is. And the customer is going to pay you later. They're always going to pay you later. They never pay you up front in order to get this deal done. And you know that because when you go back to them and say, I would really love to do this, but I don't borrow money and I don't have all the equipment I need to pull it off, I can do this and I'll give you a discount over what you're thinking if you will give me a 50% deposit up front, which finances all my equipment to be able to do this,

100% of the time that customer walks away, which means you are getting ready to get screwed. That's right. That's exactly what that means. This deal is getting ready to put a noose around your neck and drag you around, baby. I mean, you were about to have a problem. And so I, man, I've had so many dream deals walk into this place. We didn't do them. And you look back on them later and I can't name names because it'd be embarrassing to the people that went broke.

But they come in here and it's like they're bigger than us. They're badder than us. They're cooler than us. And they want to do this big deal with little oh us. And we feel so privileged to be at the table. And then we have to pay for all this stuff up front. And it's unique and customized to them. And if it doesn't sell, they get to give us full returns back.

Which means I eat all of it, which would completely bankrupted me because I would have had to borrow $10 million to put those books into that store or those custom made kits of whatever into that product line into somebody else's distribution network. And then they didn't do their job. And we walk away from it. And 18 months later, the dadgum big guy who was cooler than me is broke. And God protected us. We didn't do a bad deal. because we don't borrow money. And if we'd have had the cash, we might have done the deal.

But at least then we would have just lost cash and we wouldn't be out of business. But again, like you go back to the value you established from the beginning of we don't borrow money. And so it sounds like... I don't want to go out of business. That's right. Well, but it sounds like one of the things you're challenging people with right here is that if you're going to be serious about this, that has to be a decision that you make now because otherwise temptation will come and you will step into that. Yeah, the temptation to buy that building.

Yeah, that's right. You know, the temptation to do whatever. And sometimes I do get to close on the thing. Sometimes I do get to go into the thing and I figure out a way. That deal I got on the table this morning, I'm going to figure out a way to do it. I hadn't figured it out yet. But a lot of times I think people hijack their ability or their team's ability to have to figure it out. Oh, yeah, because you just borrow money.

All the creativity went out the door. It went over at the bank, sat in the vault. You know, I mean, it's just, it's horrible. So it's not just established. and saying, I'm not going to do this. You need to also say, why? Because that emotionally because I'm not going to add risk to my life. I don't want the anxiety in my life. If this doesn't work and doesn't turn out like it supposedly is going to turn out, we're out of business. That's why I don't borrow money. I don't borrow money because the Bible says, and I'm a Christian, I don't

borrow money for these reasons. And you've got to have these like eight reasons because there's going to be the sweet deal in front of you. Yeah. That just looks like a chocolate covered donut, baby. I mean, need this thing, right? It's going to come up. You know it's coming. But then you got to decide ahead of time. It's not going to do that. It's like, you know, I used to coach teenagers in a ministry at our church and helping, I was one of the lay adults helping with teenagers. And I learned this, and then I taught it to my kids when they became teenagers. If you don't decide ahead of time why you're not going to sleep with your boyfriend, then you're going to sleep with your boyfriend. That's right. You can't just say, I'm not doing that because I'm

I'm a good person. You can't just, you know, do that. You have to say, no, I don't want babies. I don't want to lose my spiritual walk. These are the reasons I'm not going to have sex before marriage. I'm going to make that decision ahead of time. And then there's no chance we move from the front seat to the back seat. I mean, it's pretty simple because I got my why in place as well as you can't just will yourself to do smart things. You have to understand why. Yeah. And you can't make it a choice every single time. Just make the decision and be done with it. That's it. That's it. I'm done. And you're only done with it if you get the why. Yeah. You go, because. Because as soon as you start, you'll be tempted. You go, yeah. I mean, I say, yeah, I really want to do this. Then you go, no, it's not worth the trade off. Yeah. It's not worth the trade off. Okay. So someone's listening to this right now. And maybe it's kind of like the people that call you on the radio that are like, man, Dave, I agree with everything you're saying. Now can you just talk to my spouse? And the business people are saying, okay, I agree with everyone you're saying. But I've got this business partner or I've got other stakeholders that. I've got to convince around this.

What do you tell that person to get the other people on board? Replay this podcast, I guess. Because, I mean, the reasons we've been laying out are there. It is a, no matter which lens you look at it through, mathematical, business acumen lens, risk lens, spiritual lens, cash flow lens, never makes sense. Every one of those, if you apply good critical thinking skills to it, will lead you to say, you know what? I'm willing to grow slower. Godliness with contentment is great gain. I'm willing to walk a little slower so I don't stub my toes,

so I don't have to take penalty steps back, or worse yet, completely go out of business and turn my dream into a nightmare. I've always had a dream of owning a business. How many times have we all said that, everybody listening right now and me included, I've always wanted to own my business. I've always had a dream of owning my,

it's a great American dream to own my business. But when you do your dreams wrong, they turn into nightmares. Practically, if you have large purchases that you need to make, or if you've got someone that's saying, I'm a business owner, I need to own a building. What do you say to that person? You don't need to own a building. Buildings aren't your business. If you like real estate, that's okay, but buildings aren't your business. And I've experienced this. Once you buy a nice

building, if you outgrow it, it starts to feel weird because it's like there's two parts of me. There's the landlord part of me that doesn't want to lose my best tenant. which is me. But my business is now starting to be formed around a building. They're competing against each other. Yeah. The business is limited by the building, but yet I don't want to move it because it's my building.

And so you've got this paradox where now the tails wagging the dog. Now the building is telling the business what to do. The shape of the building, the size of the building, the location of the building, the neighborhood around the building, whatever it is, is now telling the business what to do. which if you didn't own the building, it'd be a no-brainer. We've got to get out of here. We got to get out of here for whatever reason. And you just move.

You know, you're in a restaurant and you've been there five years, but, man, everything is falling apart all around this neighborhood. I got to get out of here. My customers won't even come down here. They're not safe. Yeah. You know, this is not a good location. If you own that building, you've got two problems.

Yeah, no kidding. You have a business problem to move and now you've got an empty building in a bad neighborhood. In my case, I outgrewing. a building, and we actually bought a building next door, another little condo next door, because of an office condo. And then we started leasing, and we had almost as much space leased as we had in the other building before we got into this one. That's right.

And we had a shuttle that went around everywhere. I mean, we did everything in the world, but because we were bound to determine, I was bound to determine. And I put my leadership team on notice too, and they held me accountable to not let my real estate, Dave, tell us how to run the business. and the building will do that. If your business is not flatlined, meaning it's not completely stable,

not growing, not declining, extremely predictable, boring, then you really, a question whether you want to buy a building or not. Yeah. You know?

So you advocate people rent? Most of the time. But now, if you've sat in one place, I got a friend that has a six-bay garage and he makes a lot of money. He's a great mechanic for him stuff, and he does,

buddy of mine, personal friend, and he does a really good job. too. But he's had that thing for years. He has no desire to have more stores than that one. He has that one store. He's going to run those six bays. Everything's good. He's had it for 20 years. Yeah, buy that building. Sure. Pay cash for it, but buy that building. That's fine. But everybody, you know, what's your goal here? Your goal is to run a business and grow a business and let it make the flexible moves it needs to make in the marketplace. And I promise you, real estate will constrict you

in your business thinking if you're not very conscious about it and very careful. Are there any other prevalent lies that people should be prepared to hear about business debt? Well, I think there's kind of almost an immaturity, an emotionally immaturity around the discussion. It's almost like a little kid on the cereal aisle that mommy told him he couldn't have that cereal. And so he's red-faced inside his lip and throws a fit. And that's kind of how people react when I tell him. You know, no, don't buy a $250,000 food truck. Yeah, it's an emotional issue for people.

They get mad. Yeah. You're telling me not to live my dream. No, I'm telling you not to live a nightmare, son. And you're going to have a nightmare. It's what's going to happen. Something's going to happen. And one little slip up with the health department, the payments don't stop.

They're not health department contingent. They're not, your recipe sucks contingent. They're not, I can't find customers contingent. Those payments happen whether you're smart or not, whether things work or not. And the steadiness of that, you've got to be a grown-up and go, okay, I'm going to do this, but I'm going to find a way to do it a little bit slower. I'm going to start humbly. Don't despise humble beginnings.

I'm going to deliver stuff. I'm going to be uncomfortable. Blake Thompson and I drove 25 minutes each way for five years doing the Dave Ramsey show so that we could use the local radio stations studio. I did not have the cash to build a studio. five years. That's pretty shut up. That's pretty scrappy.

No whining. All right. I've done this stuff. All right. So, you know, it's a pain in the butt to drive over there, too. It's not even a good road, you know? Yeah. And so it just everything about it was wrong.

We cussed it. We hated it. We were always late because you get stuck in traffic. There's anxiety around that, but not anxiety like having payments. Hmm. Does the fact that you went through the good old days and the scrap. days give you more enjoyment of the life in the business that you get to lead right now? Yeah, because there's so much margin.

I mean, when you hit something and you have no debt on it at all and something catches and it's a hit, like this podcast is an example, it's going Zoom, Zoom. The numbers on this thing are amazing. Y'all are doing a great job with it. You know, all of the sudden, all the things you're making off of it, it's like a hundred percent margin because everything's paid for. All this stuff's done. You know, all this equipment we're talking on right now is paid for. So anything we make on this podcast, it's hard to even remember that we've got, you know, I'm probably sitting around half million dollars worth of equipment right now.

That's right. Roughly. You know, it's hard to remember that when we go, oh, we just cashed another $100,000 check on that. Ding, ding, baby. You know, it's such pure freaking profit. And the margins are so sweet when you do get something that's a hit because there's nothing taking it away from you. So, yeah, it becomes mathematically, financially, and emotionally, very satisfying. I know legacy and succession are top of mind for you right now. How does this topic play into that one?

I suspect I would come back and haunt one of my children if they borrowed money on this business. But speak to the peace of mind that it gives you to know that you're handing off a business to them that is debt-free. Well, and you know what? A lot of businesses, we're doing all this family business stuff we're working on around here. You've been part of it. You've helped us with it. A lot of times dad wants to hand off to junior. But really all he's got is a big pile of debt. And he's not really blessing his kid. He's cursing his kid. I mean, I'm going to give my son $600,000 in debt.

What a blessing, dad, thanks. You know? But when you are 100% debt-free and your personal finances are in order, you can make the choice if you want to for the good of the business to just give the kids the keys. My children will pay zero for this. And it's 100% going to be theirs. It's already 99% there's from an estate planning step. point we've already transferred at all. I own the only voting stock people, so we're okay. But,

um, but, but you know, the, the, the bottom line is I'm not going to charge them a dime. Yeah. Because it's not mine to start with. I'm managing it for God. So what I'm really transferring over is their responsibility to manage this for God. It's a big asset. Yeah. Obviously. But I don't need the money because my personal finances are in such good shape. I don't need any money out of the business. And there's no blocker on the transfer called debt. If there was a big bunch of debt on this, then they have to go, do I really want this? Do I really want to take that on? And is the bank going to go along with the next generation taking it on?

That's right. One of the things we teach all the time at our Master Series event and Summit event is within those six core drivers of business, is that core driver of profit. And the core belief that we always talk about is that profits fuel purpose. So I'd love for you to teach on how this topic really relates to the overall mission and purpose and value of leading a business. Well, everybody's going to have a different purpose, obviously, but our purpose is aligned with my friend Simon Sinek's new book, Infinite Game. So our purpose is not, we don't have an end game to take it public. We don't have an end game to sell it. We're just going to run it generationally.

We're just going to run it. We help people. We're going to keep helping people. And so that's our purpose. And our purpose then is to help more people. We've got enough. Ramsey's have enough. We're in good shape.

We don't need any more money. We'll take some profit out of here occasionally. But, you know, we don't mind plugging the vast majority of it right back in as long as we can help more people. Grow the business. Grow the business. Grow the business. That's our purpose. And so profit is increased and has a higher probability of actually occurring period when there's no debt.

You don't have a lot? many payments, you make more money, and you're probably going to be here tomorrow, which you might not be. And so that allows us to plow more back into, which oddly enough, the more money we make, the less need we have for debt. So profit drives purpose in that way. We don't have a need for debt when we come back around than do the next purchase unless we just have a dream that's bigger than what's going on, which is what happened this morning here. I've got a dream right now that I'll just land it on my desk. I've got to do this. I've got to figure it out. So I can't always do that. But most of the stuff we do around here, we've just got the money because we make money and we don't pay the bank any of it.

It's kind of a cool formula. If you could go back and talk to yourself before you went broke, before everything went wrong, and you had the difficult task of convincing old Dave what new Dave knows now, what would be the things that you would say to try to get through to his head? He was so stupid. He couldn't be ill. There's no chance you were going to talk that guy into anything. He was hard-headed, arrogant. He had no chance he was going to listen to anybody. That's why he went broke. What you're saying here, though, is that you don't have to go broke to do this.

You don't have to do what you did to do this. You don't have to go through drug rehab to figure out drugs are bad for you. So how do you manufacture that, though? It's not a manufacturer. It's just a knowledge thing. I don't have to sleep around to figure out that's probably not going to work for my marriage. You know, I can observe other people that has destroyed their lives. and I can believe on principle as a value of mine that I'm not going to do that,

all those kinds of things, right? And so I don't have to do drugs. You know, my kids don't have to go in debt to figure out that that's bad. They can, you can grasp it intellectually, spiritually, emotionally, and go, okay, I'm buying those ideas. I'm just not sure that that redneck kid you're talking about would ever listen to that. So, but if you could have gotten through to him, you know, I was just, what amounts to is I was so ambitious. and so driven that I specialize in doing things that people never do. I still do that.

And so that portion of my personality was malignant in those days. And so I truly believe I would not have, no one could, I wouldn't have listened to anybody. I mean, my grandpa tried to tell me I was borrowing too much money. Yeah. My grandpa, what did he know? He was just a guy, you know, he was just a guy. He was head cost accounting of alcohol, but what did he know? Just a guy.

Just a guy. and, you know, he drove an old truck. What does he know? I got a jaguar that I had dead on. You know, what does he know? He knew a lot. Coming back a little bit, you talked to our team. It was probably two weeks ago about how the world right now is a little bit of a wild roller coaster.

And certainly that's the case with the marketplace. What is the final word of encouragement you would give to all the small business owners that are out there listening to this podcast? Y2K. Do you even know what that? That is. Did it end the world? Nope. Put it in the same bucket with this other hysteria.

Listen, people who are panicked and people who are drunk make bad decisions. And there's a whole bunch of people out there right now that are both. And so just, and most of them are in Congress. So don't be panicked. Keep a clear head. Calm down. Calm down. Now, here's the thing.

when 2008 happens, when actual things hit the marketplace. And some people are going to experience some downturns in business. And some are experiencing upturns in business. If you sell hand sanitizer or toilet paper or cold medicine, you're doing really good right now, Procter & Gamble, okay? But if you're, if you're in the cruise business or you're in the airline business, you're going to have a hard time. Yeah.

And so what happens is this is a perfect example. this is not something that's in your control. It's not something you could have ever assumed was going to occur when you borrowed money to do this business idea. And anytime stupid is stress tested, it reveals. When everything's going good, stupid can look smart. But when you stress test stupid, it shows up. And that's what these events do. They're stress testing your broken theories about money and borrowing.

borrowing money and having no retained earnings to where next time it comes around. Some people like 2008, they learn their lesson. So this time when there's some kind of mass hysteria out here, then in the marketplace and people just shut down doing anything for 90 days or 30 days or whatever it is, then you can survive that because you got no payments and you got retained earnings because the last time it happened, you swore never again. I'm not going to be in a position like this anymore. I don't borrow money.

And so the bad news is that stuff like this happens. The good news is it's going to reveal the stupidity that you thought was truth. And you got to stop it. And this is your opportunity to change course right now. This is your wake up call. And so I think it's awesome because it cleans out stupid. I mean, you know, people that are stupid aren't going to be in business anymore. They're going to be gone.

This is going to shut them down. That's what happened to me when I was stupid. Yeah. I mean, the market changed, the banking climate changed. And my stupid was everything was going good. I was paying all the payments. I was making money. Everybody thought I was a golden child.

Everybody thought Dave's so smart. And then my stupid got stress tested and the house of cards came falling down around my freaking ears. It's really harsh. The marketplace is harsh. Yeah. It will flat out bust you in the nose if you leave your nose available. But it's also true.

Yeah. It wakes you up. And the trick is to learn from it. If you're freaking out right now because you got cash flow problems because everything slowed down because of whatever. then that's your wake-up call, baby. What you've been doing was wrong. And this is your time to change it.

And so it's wonderful news because the horrible thing happened to me, I went broke. Wonderful news. I learned my lesson. Well, Dave, we're grateful for your time. We're grateful for this message in the way it's going to impact small business owners around the country. Thanks so much. Absolutely. My pleasure.

So, you know, on that last thought, just popped into my head. Warren Buffett says, when the tide goes out, you can tell who is skinny dipping. That's right. Do you think he's just a little bit passionate about that topic? I'll tell you, I've worked with Dave for four years now. And one of the things that I've learned is that he gets passionate about the things that he believes in. And running a business debt-free is something that he deeply believes in because he's experienced the consequences of doing it wrong, but he's also now getting to live in the blessings and benefits of doing it right. And I know that his passion, comes from a deep desire to see every single one of you experience those exact same blessings and benefits. And here's the deal. We're really excited about this. Dave is going to be doing a small business hour on his radio program, the Dave Ramsey show, where he's going to take your questions about running a business debt free. We have no doubts that this probably riled a lot of you up,

and you're probably thinking some thoughts you've never thought before about the operations and logistics of your business and Dave wanted to open up his time to answer your questions. So if you want to call in and ask Dave a question on the radio program, you can click the link in the show notes to fill out that form and our team will work with you to get you set up for that conversation. Hey, I also want to let you know about a resource that our team created that applies directly to the conversation that we had today. It's the six financial reports that can save your company. Now, this free PDF is going to walk you through the things that you need to have at your easy access as a business owner to make sure that you know your numbers. So if you want to get this free PDF, you can click the link

that's in the show notes. I hope you enjoyed this episode, the Entree Leadership podcast. If you did, please give us a five-star review and tell your friends to subscribe. For a chance to win a $25 Amazon gift card, you can review this episode by clicking the link that's in the show notes. And be sure to follow us on social media at Entree Leadership. This episode was produced by Tim Hull, and it was edited and mixed by Will Rudder. I'm Alex Judd, and on behalf of the entire Entree Leadership team, thanks for listening. We'll talk with you again very soon. If you enjoy this podcast, you should check out other great podcasts from the Ramsey Network, like The Ramsey Show.

We want you to take control of your life and money once and for all. I'm Dave Ramsey, and along with my co-hosts on The Ramsey Show, we'll give you straight talk on everything from budgets to career to relationships. Join us as callers from all walks of life, learn how to get out of debt, and start building for the future and how you can too. Listen to the Ramsey Show, wherever you listen to podcasts.