Reza Tehrani Advice to Business Owners: Get out of Debt Before Expanding

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As a successful business owner, it’s natural to want to grow, but is it the right time? Businessman, and president of Aviron Institute of Technology trade school in Montreal, Canada, Reza Tehrani says, “get out of debt before expanding,”

But in the entrepreneurial world of business, where taking chances is the game, and business and credit risk is part of the gamble one takes for a shot at their dream, when is a business truly successful? And if yours is a successful business, when is a good time to expand?

“The best time to expand a business from my perspective is when the business is financially self-sufficient,” Reza Tehrani said.

In a CNBC article published last year, Pat Kiernan writes that businesses that are deeply in debt are prone to making bad choices because the basis of their decisions is based out of desperation rather than what is needed for growth.

Becoming a business owner is not easy. According to a report in Business Insider, 50 to 70 per cent of businesses fail in the first 18 months. One reason for such high failure rate is a lack of capital. The average small business reportedly does not see a profit for the first 3 to 5 years.

According to reports, despite what appears to be a dismal outlook for new business owners, most still say they would rather try and fail at owning a business than not try.  Many are willing to get into all kinds of debt to fulfill their dream. Some are expanding while still in debt – something the experts say is a bad business decision.

To help business owners answer the question, “when is a good time to expand?,” Kiernan came up with a list:

Dump The High-Interest Debt

Not all business owners have adequate credit to qualify for business loans with reasonable interest rates. Many rely on credit cards to get and keep their business off the ground, Kiernan writes, referring to Sky Fitness 24/7, a family owned fitness facility that reportedly grew its business by maxing out high-interest credit cards.

“Just because a lot of people get their start-up capital this way doesn’t mean it’s a good idea,” he noted. “Credit cards may assist in realizing short-term goals, but interest rates of 15 or 20 percent eventually can be crippling. So do what you can to dump the high-interest credit card. It’s a ticking time bomb that can kill your business down the road.”

Look for Bottlenecks

Bottleneck is a phenomenon where the performance or capacity of the entire system is limited by a single or limited number of components or resources.

“A business should have enough capital on hand to deal with unforeseen issues that often arise,” Reza Tehrani said.

Pat Kiernan used Mystery Brewing as an example, and explained how the bottleneck concept applies to businesses. Mystery Brewing Company reportedly had a great product with an order backlog, but it was underfunded. It had a lot of production capacity, but without money to buy enough kegs to get the beer to his customers, founder and CEO Erik Lars Myers missed a chance at new business revenue because he didn’t have enough capital to inject into his business at a crucial time, Kiernan said.

Achieve Efficiency

Efficiency describes the extent to which time, effort or cost is well used for the intended task or purpose.

The idea as it relates to business owners, involves an investment in their business to operate more efficiently. An example would be installing a software system that would process customers faster or investing in a machine that can automate part of the production process, this frees up time to focus on other things. 

Crank Up the Marketing Effort When the Time Is Right

If a business is successful, Kiernan said owners should expand, but only if the company has discharged any high-interest debt, and has become reasonably financially self-sufficient. “I’m not saying you shouldn’t strike while the iron is hot. Just make sure the cord is not frayed before you plug the iron in,” Kiernan said. 

Are You Ready To Expand Your Business?

Kiernan concludes his article by recommending to business owners that if they have capital available after going through the list, then– and – only then, are they ready to expand their business.

“It’s natural for any entrepreneur with a well-regarded concept to want to grow, but smart growth waits until a business is equipped to handle it,” Kiernan said, advice that Reza Tehrani said he learned as a business owner.

What’s Next?

The question that many successful business owners have is, what’s the most effective way to expand their business?

The first step, according to Reza Tehrani, is choosing the right location. “This is one of the most important aspects for success in a new or expanding business,” Tehrani said, adding, “not every location is right for every business; it is not always a one-size-fits-all aspect in business expansion.

 

Patricia Luckoo contributed to this article.

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