Many people think that you need to borrow money to start and build a business. The truth is that borrowing may destroy your business – not help you build it. And building your business without borrowing – one small step at a time will probably produce a really healthy business. Following are two examples:

First, Dick. One time when Dick was in high school, he went to the Dentist. He was impressed with the beautiful waiting room. He was impressed with all the nice people who worked there. He was impressed with all the fancy equipment that he saw. He was impressed with the Dentist when he examined his teeth and told him what a good job he was doing of taking care of his teeth. He had no cavities and he would not have to return for a year.

Then Dick was impressed, actually shocked to find out how much the Dentist charged to simply tell him he was doing a good job.

But Dick was most impressed as he sat in his car outside the Dentists office. He looked up and saw the Dentist come out and get into a bright red Ferrari. It was at that very moment, Dick decided, HE wanted to be a dentist.

Well, Dick qualified for student loans that he used to pay for both his undergraduate school – and then Dental school. He studied hard and graduated near the top of his class in Dental School. After seven years of school – he was ready to set up his dental practice.

He went to the bank and they told him that if his dad would co-sign the note he could qualify for a business line of credit that would provide for all the funds he needed set up his office.

Well, Dick got the best equipment, the latest technology – even a video camera that he could use to show people the cavities inside their mouths. Then, he put an ad in the paper offering top salary; for an office manager, a chair-side assistant, a bookkeeper, and a hygienist – all of whom he hired.

The first few months were very slow, he really didn’t have enough patients to keep his employees busy – but he didn’t want to lose them so he kept them on at full salary.

In order to build up the number of his patients, he hired a marketing company that promised he would have a million dollar a year practice within two years.

In order to pay his staff – and now the marketing company, Dick had to increase the limit on his line of credit at the bank – But, that was no problem, in fact they increased it even more than he had asked.

Well, with the help of the marketing company, Dick was able to build his practice until the revenue was over a million dollars a year. During this time, he also got married and had three children; he bought a new beautiful home in the suburbs. He never got a Ferrari – but he did get twin Mercedes sedans – one for him and one for his wife.

At the end of the first year, Dick hired an accountant to do his taxes, and he was delighted to find out that he did not owe ANY taxes. In fact, Dick was amazed to find out that he didn’t owe any taxes for the first three years that he was in business, and his taxes were very modest for the next two years. His accountant explained that this was due to the huge amounts of depreciation he had on his equipment, the huge amounts of interest payments he had on his line of credit and his Home Mortgage – and his student loans which qualified for extra credits on his tax return. His accountant did explain him that he would need to start paying some quarterly estimated taxes after the fifth year – He even prepared the forms for him ahead of time, so he could do this.

During his 6th year in practice, Dick was sometimes frustrated that he didn’t have enough money in his account to meet his payroll. But the bank continued to increase the limit on his line of credit – and since they had no problem with this, Dick thought everything was ok. Besides, he had several credit cards he could use when things got tight.

Then, after the end of the sixth year, Dick dropped off his books at the accountants office and he took his whole family to Hawaii for two weeks. He figured they had earned this, since he had not taken much time off since he started his practice.

When he returned from Hawaii, he found a message to call his accountant. He did and his accountant asked him if he had made all his quarterly Estimated Tax Payments on time. Dick answered; “Estimated Tax Payments, what’s that?” The accountant reminded him about the forms he had given him. Dick had not made any of these payments, as a result he now needed to come up with $140,000 to pay his taxes for the year. Dick was shocked. He asked his accountant how could this be. He had never had to pay more than $15,000 in taxes before. The accountant reminded him that all his original equipment had all been depreciated AND that Dick had taken over $310,000 out of the practice for himself

Dick then went to his friendly bank only to find out – that they were no longer friendly. In fact, they not only refused to loan him the money for his taxes, they wanted to rewrite his line of credit and turn it into a long term note.


Here is what I found: Dick’s debts totaled one million seven hundred fifteen thousand dollars! I calculated what it would take for Dick to pay off his debt over a period of twenty years. The interest on his debt, over the twenty year period would average $11,500 per month and the principle would average $7,150 per month. BUT, what Dick had failed to consider (as do most that borrow to build their business), he would have an increased amount of taxes to pay. Dick would have to earn $21,092 and pay taxes of $6,792 in order to have $7,150 to pay per month in principle.

SO, in order to pay off Dick’s debt of $1,715,000; Dick would have to come up with an additional $25,442 every month ($11,500 for interest, $7,150 for principle, and $6,792 for additional taxes).

Dick was already barely able to pay his employees each week. Unless some dramatic changes were made, there was no way he could come up with the money to pay down his debt – even over a period of 20 years.

In others words, in order to pay down his debt – he needed ALL of his profits, there would be NOTHING left for him to live on.

Well, I came up with a plan for how Dick could do this; how he could be debt-free – in 20 years.

This plan included selling his home and his cars, firing half his employees (he was up to 10 at that point), and moving into a smaller office.

DICK BLEW UP, He said he would come up with his own plan! And he refused to pay me for the work I had done.

Well, here’s how Dick’s plan worked out. He actually managed to survive for FIVE MORE YEARS – BY BORROWING MORE EACH YEAR TO KEEP GOING. Toward the end, he was actually borrowing money from the mafia in California. As a last ditch effort, he sold his dental practice (for half what it was worth), but that only bought him about six months.

Then, His parents home was foreclosed upon (since his dad had co-signed on his main loan with the bank). Then, Dick’s own home and cars were foreclosed upon. And I won’t even tell you how the mafia tried to collect their money. Dick ended up broke and divorced, and he then he just disappeared – I assume he went into hiding from the mafia – or worse.

NOW, THIS IS AN EXTREME CASE, but a very common one. You would not believe how many similar situations I’ve seen. Many of those who fall into the debt trap end up self-destructing at worst, or at best they simply end up spending their lives paying off their creditors.

Now, PLEASE READ about ANOTHER EXTREME CASE, one that is very uncommon.

Another DENTIST, Larry, worked and saved money through his teenage years. This gave him enough for his first year in college. He worked part-time during his undergraduate studies. It took him 5 years to get his undergraduate degree and he barely made the grades to get into Dental school. But, he did not have the money to go to Dental School. SO, he stopped school for three years – and worked – construction.

He also got married during this time, and had 2 children.

After three years, he had enough to go to Dental School. He graduated from Dental School in the middle of his class. After graduation, he went to work as an employee for another Dentist, one whom he respected a great deal.

He worked for this Dentist for three years. During the three years, he was able to buy used Dental Equipment which he stored in his garage. Larry had noticed a small shopping area on his way to work. It was a nice area, had space for about 10 businesses, but it was mostly vacant. He called the owner of the shopping area and took him to lunch. The owner was so excited about having a Dentist as a tenent that he offered Larry a years free rent just to move in.

Larry spent about a month remodeling the office he wanted and then he moved his used equipment in. For the first 6 months, he had no employees although his wife did come in part time to handle the phone and serve as receptionist and bookkeeper.

By the end of the first year, Larry had enough business to pay for a full-time employee AND instead of paying rent, he ended up buying the entire shopping center, partly because it was still mostly empty and the present owner could not afford to keep it.

It was at this time that Larry became on of my clients.

I encouraged Larry to recruit other young Dentists who were like-minded and a couple of specialists to move into his shopping center which we now labeled – with a big sign. DENTAL SERVICES CENTER.

He did have to take out a mortgage on the shopping center, but he was able to pay it off in 5 years. In fact, after 5 years, the rental income from those in DENTAL SERVICES CENTER generated as much income for Larry as his dental practice.

During the first ten years, Larry and his wife – and now 4 children lived in a rented house within walking distance of Larry’s office. During this time they only had one used car.

At the end of ten years, Larry purchased (for cash) 460 acres of land in Eastern Colorado – about two hours from Larry’s dental practice.

It was at this point that I helped Larry see that his dental practice was worth far more than anyone would likely be willing to pay for it. So, instead of selling his practice, I encouraged Larry to continue to work, but just 2 days a week. This is what still he does now – and he spends the rest of the time with his family raising quarter horses on what was now his Ranch in eastern Colorado. He is grooming another dentist whom he will pay generously to keep the practice going while Larry phases out his active involvement in the practice. It will still provide him and his family more income that it would have if he had sold the practice.

If desire to build your business without debt, or if you are already in bondage to debt – but want to get out of that bondage; please click  “CONTACT US” at the top right of this page or call us at 503-927-2750.