The Gurus Are Lying! Debt Is The Devil. How To Build A High-Cash Flow Business With Zero Debt.

0:02Mazda has been named Consumer Reports' safest new car brand. It starts with our approach. Every Mazda comes standard with proactive safety features. So you're more aware of what's around you, more focused on the road ahead, and ready before problems ever start. Mazda. More of what matters most to you. Go to mazdausa.com to learn more. Consumer Reports does not endorse or promote any product. Who knew Walmart business could help a thriving office motivate their employees? Pamela knew. She uses Walmart business to get the assortment of items her team needs at the prices she loves. As the office manager, it's my job to make sure my team stays on top of their game.

0:42I can get the basics like cleaning supplies and paper towels. But what they really care about, snacks. And she can get everything they need when they need it. Greg loves wheat crackers, Brenda Crave sour candy, and Max, oh boy. He needs protein bars and milk and applesauce and turkey. It's Walmart, built for your business. Who knew? I want to talk about something that's been bothering me for a very long time. There's a group of financial gurus, people like Robert Kiyosaki, Grant Cardone, that have convinced an entire generation that debt is a good thing, that debt is acceptable, that it's actually sophisticated.

1:13I'm here to tell you that it's one of the most dangerous lies being sold in entrepreneurship today. And I say this as someone who believed it. I believed it. I lived it. I was in debt. And I seriously paid for it. I'm going to tell you that story in a moment, but debt is not a wealth building tool for people starting out. Debt is actually a trap dressed up in a suit. So you really need to be careful because this is very dangerous advice. And by the end of today's episode, I'm not only going to crush this debt is good argument, but I'm also going to give you the specific steps you need so you can have an alternative plan that actually builds wealth without the risk.

1:49Let's get into it.

1:55Welcome back to the$100 MBA show. I'm your host, Omar Zinhome, where I deliver practical business lessons three times a week, Monday, Wednesday, and Friday to help you start, grow, and scale your business. If this show has helped in any way, it would be amazing if you could drop us a quick review on whatever app you're using to listen to this podcast right now. It helps me and my team bring new episodes every week. And more importantly, more entrepreneurs will be able to discover our podcast so you can help someone else start their journey. Thanks so much. So first of all, I have to give credit where credit's due, okay?

2:32The argument sounds great on paper. You know, create wealth with other people's money, or OPM is what they call it. You borrow money, you invest in real estate or some sort of asset that returns more than the interest it costs you, and then you pocket the spread, you pocket the difference. And because debt is not seen as income in most places. It's not taxed the same. So a lot of these crazy billionaires are like shouting from the rooftops and saying, oh, I got a billion dollars in debt. Then they act like they just won a prize. The size of your liability is not proof of financial genius. It's not.

3:06Look, I get it. We all want a cheat code. We want an easier way to make more money. Right. It sounds good, right? Borrow money, make money, pay less tax, rinse and repeat. The problem is the cheat code only works when you already have enough money that the catastrophe is not infinite loss, meaning that in business, your whole goal is to stay in the game. And like a video game, you know, when you die, you're game over. Right. But unlike other video games or unlike a video game, you can't have multiple lives. Right. it's very hard for you to rebound from financial catastrophe. So what you want to do is make sure you are financially healthy for as long as possible so that you can have a chance to succeed in business.

3:49Now, there is a place for debt, but it's not at the start of your journey. And for most of you listening, if you're not making millions and millions of dollars right now, then this is not for you. Debt is not for you because it's going to hurt you in more ways than one, which I'll explain today. So I'm going to give you an alternative plan and I'm going to show you that you don't actually need this. And actually debt is not going to teach you how to be a better business person. So let's get into that. The first thing I need to warn you about is that when you owe money, you owe it regardless of what happens.

4:22This is something that a lot of these financial gurus do not talk about, right? When your business slows down, you still owe it, right? You still owe the money. When the economy tanks, you still owe it. When a business walks out on you and goes to a competitor, you still owe it. Heck, when a global pandemic happens and everything shuts down for two years, you guessed it, you still owe it. Debt does not care about your circumstances. Debt does not care about it's Christmas. It does not care about the fact that you had a rough quarter. It needs to take your money every single month on time, no exceptions.

4:54The debt is due and you have nothing to say about it, okay? That's a fixed non-negotiable obligation that removes something from your business that's worth more than the capital or the debt that you are going to be owing. Let me explain what that means, right? When you have debt, you have no margin for error. This is incredibly important because in business, things will go wrong, just like in life, right? Things will not go to plan. And when you don't have any room for error, you have no margin, it's very hard for you to rebound from these small little problems that creep up, things that you do not expect and things that are out of your control.

5:32For example, if you don't have debt and you have a bad quarter, yes, it's painful. You can cut some expenses. There's some moves you can make. But with debt and a bad quarter, it's like a five-stage alarm going off because the costs, you can't bring it down. You can't not just pay the bank. You have to pay the bank. You've got to pay that debt regardless of how things are going in your business. So you don't need that kind of pressure on yourself, especially in the beginning, because when you have financial pressure, when you don't know if the roof is going to stay up, it's very hard for you to be creative.

6:04It's very hard for you to be innovative. And I know this from firsthand experience, which I'll share with you right now. I had debt. I had credit cards. I had loans. And I'll tell you exactly what it does to you. It does something that I did not expect. It becomes a crutch. Yes, the debt is bad. The pressure is horrible. The fact that you have than pay these payments regardless of what's happening in your business. That's one bucket of pain, okay? But there's another thing that it does for you. It doesn't allow you to build the muscles that you need to become a profitable business. Let me explain.

6:38Every time you have a hard decision that you need to make, anything that requires any kind of creativity, any kind of discipline, any kind of real problem-solving skills, something whispers in your ear when you are addicted to debt, when you're just used to just swiping the card or maybe dipping into your credit line with the bank or an overdraft, got her bit, right? All that kind of stuff starts whispering in your mind because you can always go and just get more money to solve the problem. You just throw money at the problem. But when you don't have that cycle, you are forced to be innovative.

7:11You are forced to be creative, to be resourceful. Part of life and in business is hardship. And the best thing, the gift of hardship is that it teaches you the best lessons. When you go through a tough time, you learn something about yourself. You build new skills so that you can get out of that hole. And if you don't have those opportunities, it's very hard for you to be a resilient business person that's growing and moving up in the business ladder. So in my experience, I found that I was really reliant on debt and I had to get out of debt as fast as possible. So I try to pay off my credit card as fast as possible.

7:49I paid off my loan as fast as possible. And I was so glad that I did that early on. This is like I'm going back 20 years or so because it gave me the opportunity to be more creative, but also it gave me the opportunity to be more resourceful when problems face. So for example, if I wanted to build a new website and I couldn't afford to hire somebody, I didn't just swipe my credit card. What I did instead is I learned how to build a website. And I built a MVP website, minimal viable website, so that I can be able to get going. And then from there, when I made some money, I was able to hire a freelancer.

8:22See what I'm saying? Like you learn how to solve problems without just leaning on debt. Before we move on, if you're finding this episode helpful, it's getting you thinking differently, it's maybe getting you thinking about your own debt and your own situation, then I want you to hit subscribe. Because as you start building your business, you're going to face some problems that you need to solve. One of those problems is firing good people. I found that this is one of the hardest things in business where you have to fire somebody that is actually a good person. Now, why am I talking about this?

8:54Well, it's actually an episode I'm working on right now. I'm actually in the scripting phase and I can't wait to share it with you. So hit subscribe so you don't miss it when it drops in the feed. So go ahead, hit subscribe and make sure you don't miss that episode. So you might be saying to yourself, okay, Omar, I got it. Debt is a devil. I don't want to do this anymore. What's the solution? What do I do instead? Okay, so if it's not debt that you're going to be leveraging, what do you do? Well, three things. They're simple, they're proven, and it's actually boring, okay? But it's boring in the best possible way.

9:25One, I want you to build a high margin business. This is everything. When I learned this principle, it changed my whole life, not just my business life, but my whole life because I started seeing things in this way. Let me explain what this means. Your goal in business is not to make a lot of revenue, to not make a lot of money in sales. Your goal in business is to keep as much money as possible. It's all about profit. You want to make sure that you keep as much money that you make. So this is why I really believe that you should, especially in your first business or two, build high margin businesses, businesses like services, digital products, subscriptions, consulting, coaching.

10:07Why? Because the amount of cost it requires to run this business is far less than how much you can make, the potential that you can make in terms of your profit. So these businesses historically run at 60, 70, 80, even 90 % margins. When I was running my software business, at one point we were making 95 % margins. That's insane. Okay, but the reason why these business models exist and why they're so valuable, and that's why when I sold this business, I had so much leverage, is because of these margins. because people understand that when this business grows in scales, it increases in its margin.

10:41Your job as a business owner is to keep as much money as possible, right? Obviously, you need to spend money to make money sometimes, and that's okay, but you should never be making or spending more than you're making. Obviously, you're in the negative, but you really should be pushing to make at least 50 % margins, meaning that when you put in$100, you need to make at least$200. And listen, I had businesses that were not high margin. I had a clothing line business over 15 years ago that was pretty successful, but it was making 15, 20 % margins. Any small catastrophe or any kind of problem, my business will wipe off my margins.

11:19So I don't want that kind of business, right? Why? Because there's inventory, there's warehouses, there's machinery, there's all kinds of ways for this thing not to work, right? Things to break down. And you don't want that kind of business, especially at the start. Why? Because at the start, you want to have a war chest of capital, of money that you can reinvest into other businesses. And you want to line up your ability to be successful as possible. You want to stack the deck in your favor. So that's number one, focus on building a high margin business. This episode of the$100 MBA show is brought to you by booking.com.

11:54If you're looking to grow your vacation rental business, this is the place to be. Booking.com is one of the most downloaded travel apps in the world, and for good reason. Since 2010, they've helped over 1.8 billion vacation rental guests find places to stay. But here's the thing. Most vacation rental hosts don't even realize they can list their properties on Booking.com. And if you're not on the platform, your rental is basically invisible to millions of Booking.com travelers worldwide. After all, they can't book what they can't see, right? I book all my travel, personal and business through Booking.com.

12:33And it's for good reason. I love their genius program. So because I'm loyal and I use Booking.com, I'm a genius level three. Yeah, I say it with pride because it gets me the best prices. I also love the fact that they give you all the details about all the hotels or the apartments that you're booking. So I know exactly what I'm getting before I check in. Does the place have a gym? Does it have a hairdryer? Does it have a fridge? What about a washing machine? I know because the listing is always accurate. And they're app is easy to use. So when I'm dead tired after a long flight and I'm trying to check into my accommodation, it's super simple.

13:08Just pull up my booking and show it to the host. So if your vacation rental isn't listed on booking.com, it could be invisible to millions of travelers searching the platform. Don't miss out on consistent bookings and global reach. Head over to booking.com and start your listing today. Get seen, get booked on booking.com. One of the biggest growth hacks is realizing you don't have to do it all yourself. That's how you can scale your business. This is why I'm so excited to have Upwork as a sponsor because I've been using Upwork for over a decade. Why? Because it makes it easy to bring in the right freelancer when you need them so you can stay focused on what you do best.

13:52Upwork is a one-stop shop platform to find, hire, and pay expert freelancers across across web and software development, data and analytics, marketing, business operations, and more. I've made some of the best hires in our company through Upwork. I'm talking about people that have changed the trajectory of our entire business. It's free to sign up to Upwork, and posting a job is super simple and easy. Upwork helps grow your business by giving you fast access to specialized talent across 125 categories. It makes it simple for you to just fill in those skill gaps, to launch projects faster, and scale your support up or down without committing to full-time headcount.

14:32And let me tell you about Business Plus. It's a game changer. With Business Plus, you can access the top 1 % of talent on Upwork. And with AI-powered shortlisting, you'll get matched to the right freelancer in under six hours. No endless searching required. Visit Upwork.com right now and post your job for free. That's Upwork.com to connect with TopTown ready to help your business grow. That's U-P-W-O-R-K dot com, Upwork dot com. Number two, start small, save first. Don't start on the wrong foot. Don't just start off debt or off a loan or off a credit card or borrowing from your parents. Oof, that doesn't feel good.

15:17I know a lot of friends that barred hundreds of thousands of dollars from their parents, and they can't go home for Thanksgiving. It's pretty sad. But there's an alternative. You don't need much to start, especially today with all the tools and all the power of AI that allow you to leverage so much of media and code and all that that we've talked about in past episodes. For less than$5 ,000, you can get going in most of the businesses I mentioned and some of these high leverage businesses and these businesses that have high profit margins. So I'm recommending that you save$5 ,000 so you can start one of these.

15:53And by the way, you can start for less. But I'm just saying on average,$5 ,000, every business is different. $5 ,000 is less than a holiday. Okay, it's less than a used car. All right. So skip a holiday one year. Listen, I'm not ashamed to say this. I didn't go on holiday for my first, I would say eight years of my entrepreneurial full-time entrepreneurial career, eight years, I didn't go on a holiday. And the reason why I was doing this is because every time I would make a bit of money, I'd throw it back into the business. I didn't want to spend it on myself. I wanted to keep reinvesting. I wanted to keep the chips on the table because I knew that this is the best investment I can make and invest it in myself.

16:29And yeah, I can go on holiday. It could be fun and it'd be enjoyable, but there'll be plenty times to go on better holidays once I'm able to be financially free. And one of the things that really changed my mind about this is I had the opportunity when I was starting one of my businesses to go on a holiday and I had about$7 ,000 saved. And I thought to myself, when I come back from this holiday, would I regret or would I really enjoy the holiday? Or how would I feel if I actually use that money to start a business and start building my financial freedom, start building my business, which one would give me more satisfaction?

17:03And the second one definitely started to feel empowering, feel like exciting. Wow, I'll be doing something. I'll be one of those people that's actually making things happen. And that really made me feel good. So I thought, okay, can the holiday, I'm working on the business. Number three, reinvest deliberately. When the business makes money, put it back in strategically, okay? This is your job. You're not only a business person, you're not only a creator, you're not somebody who's only creating a great product. You're also an investor in your own business, in your own future. Every time you make a profit, think about what you can do with that profit in your business if you reinvest.

17:38Every time you spend a dollar on your business, think about how you can use that dollar to make more dollars. And this is why Nicole and I, when we run our business, every time we spend any kind of money, the first thing we think about is like, how are we going to get this money back? So if I buy a piece of equipment, if we make a hire, if we go on a business trip, where you have to think, is there a direct line of return when I spend this money? If you can't draw that line clearly, don't spend it. And if you can't reinvest that money in a way that's smart, that actually makes you more money, then you can reinvest in something else.

18:12You can take a dividend and you can put it into a stock or whatever. This is not financial advice. But my point is that if you want to reinvest or spend your money, make sure you're doing it in a way that makes more money. Don't just move to a fancy office just to feel good about yourself or, you know, have, you know, fresh flowers coming in every day in your office, which is nice. But does that actually make you more money? Probably not. You know, it's something that makes you feel good. But in the beginning, you're trying to snowball your profits so that you continue to have a bigger snowball as it gets down the hill.

18:44Now, another thing that you can be deliberate about when it comes to your profits is having a cash reserve, right? Cash reserve is oxygen in business. You don't have to be running on just zero all the time, right? You don't have to constantly reinvest. What we did is when we have profits in our business, what we do is that we take a portion of it and reinvest it in the business and a new venture into marketing, into sales, into hire. But we take another chunk of it and we just put it into a savings account for the business. Why? Because this allows us a little breathing room just in case that we have a bad month, something happens.

19:17Also, it just gives us a chance to have money on tap. As your business starts to grow, you're like, oh, I have an opportunity here. I can go ahead and use this money, whether it's a marketing activity, or maybe you want to acquire a small business that's going to cost you$30 ,000. And now you have the money on cash and you can negotiate and make it an easy purchase. So reserve cash is something that you want to think about as well. So not just throwing the money back in the business to make more money, but having there that safety net. It's actually the opposite of debt, where you have a surplus of cash that allows you to sleep better at night.

19:49Now, I wouldn't be fair if I don't talk about this concept of debt when it comes to big companies and big numbers. This is not like completely false. I'm just saying it's not good when you're starting out and you're on your journey of building wealth. I'm gonna give you a case in point, Apple. Apple Computers, the company. Apple carries roughly$84.7 billion in debt. Why is a business as profitable as Apple taking on debt, right? You think that debt is smart. Well, for them, it's a smart move because they're a big company and it makes sense for them. I'll tell you why. People see the headline and say, well, Apple's in debt.

20:25They have$84.7 billion in debt. Well, the other thing is that you don't see in the headlines is Apple also has$147 billion in liquid assets. Okay. They have a huge war chest just sitting there. So even if they default on their debt for some reason, they have it covered in cash. Apple could just write a check today and retire every dollar and make sure that the debt is gone forever. But the reason why they carry the debt is so that they can scale and borrowing rates are lower than the buyback. And this is all kind of technical mumbo jumbo. But the point is, is that the interest they're going to pay on that loan is less than what they can do with that money.

21:04So they go ahead and they invest offshore. They pump up their manufacturing, and they're able to make more money with that money. And again, because they're such a big company, every dollar counts when it comes to their tax liability. So it makes sense for them. The reason why I bring up this example is because you don't have$147 billion in the bank. So you don't have that flexibility to just take on all this debt and then leverage it so that you can save money on tax. But what they're doing and the way they're leveraging debt is an example that applies to literally 0.0001 % of businesses to justify this type of behavior, okay?

21:42Don't fall for it. This is not for you. You are not Apple, at least not yet. But the point here is that until you have that war chest, until you're able to have a profitable business year after year, month after month, and you're able to build upon all that cash, then you can start looking at leveraging debt and going to the bank and taking out loans that are less than what you have in the bank. If you know anything about me and you've been following the show for some time, I'm not an extremist, right? Most of my answers is it depends, okay? And that's the truth of the matter. And this is why often it's not that sexy, right?

22:17It's not like a straight up answer. You know, it does have its place in some places, in some situations, but my job is to help you who is trying to get a business to a million dollars in revenue and make profit with that business. And my advice to you is that this is not the place for it. You could do much better, and having debt is actually going to hurt you more than it's going to help you. Later on, you can be able to leverage some of these tools once you have some cash reserves. Before we wrap up today's episode, I want to give you the real reason, the thing that I learned that is the reason to go debt-free.

22:52Here's the argument that no one ever makes when it comes to this. You know, I never hear this in conference stages. I never hear this on TED Talks. I never hear this anywhere, right? But debt does not just cost you money. It costs you freedom. And the reason why I got into entrepreneurship in the first place is to have freedom, is to be able to create freely, is to be able to produce things out of thin air and do what I want, how I want it. And that starts to erode as soon as you take on debt. When you carry significant debt, you can't take risks that you believe in. And this is really important because business is all about taking small bets, betting on and experiment, seeing if this is going to work in your business.