From the National Dialogue on Entrepreneurship:
Two new polls from the American Bankruptcy Institute (ABI) may portend bad news for American consumers and small business owners. ABI regularly posts on-line polls that ask its members and others to offer their views on future trends in the field. Recent polls asked respondents to comment on trends in consumer bankruptcies and bankruptcies among middle-market companies (i.e. family-owned firms, private companies and smaller publicly-traded firms). Sixty-one percent of respondents expected consumer bankruptcies to grow by at least 20% in 2007. Meanwhile, 71% expected middle-market bankruptcies to “substantially increase” in 2007. Both of these predictions run contrary to 2006’s pattern when bankruptcy filings in both categories were at extremely low levels. Industry observers expect an increase in bankruptcies will result from tighter credit and an expected “shake-out” in key sectors such as real estate.
There is a lesson for all in these studies. While high use of debt may sound like an easy way to grow a business in booming times, it makes a business vulnerable when markets soften — and they always will at some point. When making decisions to take on more debt, think about where it will leave your business if things get tough. Run some scenarios in your spreadsheets on what happens if your sales fall with a higher debt load before you make the decision to borrow more money. You may decide to grow a little more slowly with a lot less debt.
Remember, pigs get fat and hogs get slaughtered! Don’t get greedy….