Recent 2 incidents made me write today’s post. A few days ago, two brothers in Delhi committed suicide due to excessive debt. Today a Jaipur-based jeweler killed his 2 sons (minor) & wife and hanged himself. Reason – Same – The Debt Trap in Business which leads to a debt trap in life. And, many people are not that mentally strong to cope with such pressures.

Politically if you want you can blame the leadership of the country, RBI, Banks & the business system.

In general, you can curse Pandemic, the act of god!

But it is the DEBT TRAP!

It really makes me feel low, when I see family members facing issues – just because someone in the family created & threw others in this DEBT Trap.

Naval Ravikant says “There is no skill called “business.” Manging it is like reading a never-ending book. Reading is faster than listening. Doing is faster than watching.

Debt is like a double-edged sword. It works wonderfully in good times. But in poor economic conditions, the same can cause huge damage. Indian companies specially small business units are experiencing the same. Many of them are on the verge of bankruptcy.

Add to this, the economic and interest rate environment has forced even larger groups or viable businesses to ask banks to restructure their loans.

Avoiding Debt Trap in Business & Life

When the situation (pandemic) began in March 2020, many businesses closed permanently by May -June. I had also not seen such times. In fact, I jokingly would ask everyone – What sort of business these people are running for so many years if they cannot bear 2-3 months’ of closure?

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My bad, my inexperience but now I have learned that it is not the cost that leads to failure. It is debt.

You can save or cut costs but Debt is unavoidable.

Someone is paying you for your goods or services, you are paying rent & cost. From that money again someone is paying cost & rent to someone. But when the cycle stops – It is a trap. Because you depend on that money.

Debt Trap in Business can be avoided in 2 ways – before an emergency strikes & post you hit the pillar.

Rules to follow always:

Calculate your cost of operations – the fixed cost. Always divide them into groups – To be avoided, can be avoided, cannot be avoided. Feel free to eliminate the first ones at any time. Cut the second lot when you see a downturn. Do not think much.
Can you run a business without debt? Yes, many businesses run without DEBT. Asian paints run on 8 day cycle of money. Means in 8 days, that get money back with profits for the pain sold. I know small business cannot run like this, but make an attempt to achieve this.
Avoid purchasing dead assets in good times. I see many cash strapped people living in mansions, running big cars but accept pay their SIPs or servants. it is not an issue of business but, cash management. You git your money stuck in dead liabilities that you have no white money to run your normal life.
Make emergency funds for the business. If you are running a small business or practice, make an emergency fund like you make for yourself. The amount can be 6 months to one year of cost (that cannot be avoided).
Manage your most important asset. For eg in a financial firm like ours, people are the most important assets. We make sure that we convey them the future hardship, the company’s emergency resources & resolving their concerns. A stressed employee is the most destructive thing you can have.
It is time that you implement
Management of your business should be frugal as your own life should be. If you have a culture, where its a party night every Friday, or where luxury is misunderstood with employee benefits you will have a bad taste when you pull up these things. It is better to run a business than running a cafe in the disguise of a “start-up”.
Watch “Wolf of the Wall Street” on Netflix. It will help you lose your many bad habits as a business owner.

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And, what about after the Debt Trap has engulfed you?

Stop hurting your self & family first!

You believed your instincts that you will be a Job Provider, not the Job Seeker.

You knew the ups & downs will be there. It is time to face the bad times.

Scale down on size & expenses.
Use your emergency fund in the most rational way.
Sell depressed assets to raise cash.
Make a list of Heads – Which are increasing debt (Rent, Capital has taken on Interest, Loans)
Shift to the small office by allowing work from home.

For loans it is best to check & meet the lenders. See if they are offering something to ease off payments. Avail EMI free or Intrest Free offers in case you need them.

If payments are already due, renegotiate with the lender. Be available. Hiding, avoiding will increase pressure.

Few more things that you can do: