22 May 2009
Can you run a successful business debt-free?
With all of the news of economic turmoil these days, it’s encouraging to read a bit of good news now and then. Some of you may have already heard about the things I’m going to discuss, but I think that there are great lessons to be learned from the business models of a couple of our nation’s large retail companies.
First of all, I just wanted to mention that recently I’ve been listening to a lot of Dave Ramsey and plan to read a couple of his books for the first time. I even ordered a children’s kit to get my oldest child started with earning money through household duties as well as learning to give, save and spend wisely. This morning I met with a few friends over coffee and discovered something that I never knew before. Apparently some people can’t stand Dave Ramsey (Oh yeah, and Stephen Covey). I had never investigated that possibility, but I really had never heard much negative talk regarding him in the past. I guess it’s easy to be jealous when you still have to go sit at your desk for eight hours a day when there are people like Dave out there.
The only reason I mention Mr. Ramsey is because of a segment that he aired that really stood out to me. A caller to his radio show inquired as to whether or not he knew of any large, successful businesses that currently operated debt free. It was a valid question. These days it seems that you constantly hear about companies raising capital, looking for angel investors, looking for venture financing, etc. It seems to me that it would especially be difficult to run a real estate business debt-free. I was surprised to hear him say that Hobby Lobby, Chick-Fil-A and several others operate in this way (including Microsoft). Now, these first two companies completely buck the trend of Corporate America. Hobby Lobby is only open 66 hours a week yet has over 400 stores with an annual revenue of $1.8 billion . Neither Hobby Lobby nor Chick-Fil-A are open on Sundays in order to allow their employees to spend time with their families and time for worship.
Hobby Lobby recently just announced that they have increased their minimum wage to $10 per hour for all full-time hourly employees (Hobby Lobby Increases Full-Time Employee Minimum Wage to $10 Per Hour). That is more than 50% above the national minimu wage. How many other retail establishments can boast of something like that these days? This is a company that employs over 18,000 people and plans to open 25 stores with over 1,000 new employees this year alone. These are the types of companies that survive the ups and down of the economy. When a recession hits and sales suffer for a year or two, they don’t have creditors knocking on their doors and shutting them down. They don’t have to sell out to a competitor because they can’t survive on their own. These are strong companies.
What I take from this, is that maybe there is something to the whole debt-free idea. There is a freedom that comes when you don’t owe anyone else anything. I still struggle with how to invest in real estate without debt. It seems to me that it’s going to take me a long time to save up $100,000 to buy a property. I’d be interested to know if there are other companies that you are aware of that are debt free and what you think about this whole idea.
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I heard that segment too, and was a little surprised. It surely would take a few years to save up $100K, but if you had some gazelle intensity, you could get it done and the profits would be so much huger without that mortgage payment.