Should You Be Starting a Business While in Debt?

By Laura @ IWMLB Project | What business shall I start?

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Oct 10
Student loan debt, credit card debt, car loans. Should you really be starting a business while in debt?

“Pursue your passion and the money will follow!”. “Manifest stuff from the universe and you will get the life you want!”

The reality is, businesses can take a long time to earn a profit (from the women I interviewed for my ‘Real Women. Real Business.’ series, it took anything from 7 months to 2 years to earn a full-time income).

If you are in debt and starting a business, you do not want to send yourself further down the money hole to get it up and running.

Some businesses earn money straight away but it depends what your business model is.

If you want to start a service-based business, then you could start selling your services straight off the bat (although it could still take time to find clients).

If you want to start a product-based business then it may well take longer as you will need to invest in inventory (unless you are drop-shipping but even that has its pitfalls).

So, what should you do? Pay off your debt first and start your business way down the line? Or go for it anyway?

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Should You Be Starting a Business While in Debt?

Where are you at right now?

First things first. You need to know EXACTLY where you are at with your money. If you don’t regularly track your financial health, now is the time to start!  

If you are starting a business, you will need to be on top of costs and revenue for the ‘lovely’ tax man so getting on top of your personal finances will put you one step ahead.

To get an overall picture of your personal finances right now, work out your net worth. If you haven’t heard this term before, it just means listing out what you own vs what you owe.

(If you live in the US you can use Personal Capital to get an overall financial picture., and it’s free! I am so gutted you can’t use it in the UK).

Net worth = what you own (assets) – Liabilities (what you owe).

Side note: If you want to read more about how to increase assets and reduce liabilities then I highly recommend Rich Dad, Poor Dad by Robert Kiyosaki. 

List the value everything you own, like your house, car, cash accounts, savings accounts, stocks, pension etc. This would the price you would get if you sold everything.

So the full value of your home and price you would get for your cash, plus whatever is sat in cash and stock accounts.

For your house, you can either use Zoopla or I use the price given by the mortgage company at the last mortgage valuation (I remortgage every few years so it gives me a decent idea). 

To value your car, you can use online valuation sites a private selling site like Autotrader in the UK.

Then list out everything you owe such as student loans, car loans, mortgages, credit card balances etc.

If you take what you owe and minus it from what you own, you will have your net worth.

This gives you a clear picture of your starting point.

What type of debt is it?

Add a column to the list of what you owe and add in all the interest rates on your debt so you can decide whether to focus on paying off a high-interest card or loan as a matter of priority.

I would say that high-interest loans and credit cards are something that you would want to get rid of asap before you start a business.

The stress of starting a business is not going to be helped by the stress of paying high-interest payments every month.

If you earn a decent wage then you can start to track your spending to see where you can trim the fat and start paying down the high-interest loans.

If you have a high amount of student loan debt, Natalie Bacon is a good resource for this as she started a blog on the side of her full-time job in order to pay off her student loans.

Should you keep your day job?

Are you starting your business as a side-hustle while keeping your day job?

If you are in debt then it would seem sensible to keep your day job until you are earning enough consistent money from your business.

It will put a lot less pressure on your business to make money and will allow you to continue to make your mortgage and other loan payments from your salaried income.

Clearly, this may mean that your business takes longer to grow, but it is more likely to be sustainable growth if you aren’t freaking out about money every step of the way.

Make a clear plan to pay off the debt

If you are handy with a spreadsheet, you could take each debt and make a monthly ‘pay off’ plan.

I’ve just quickly made an example in excel, these are completely made up numbers but you get the idea!

Credit card $5000 January February March April May June
Debt 5000 4650 4250 3500 2700 1800
Salary 3000 3000 3000 3000 3000 3000
% of Salary for debt payments 10% 10% 20% 20% 20% 20%
Debt Payments 300 300 600 600 600 600
Business Income 50 100 150 200 300 500

If you are more of a pen and paper person then do it that way, the important thing is that you make a plan that you can follow.

You can then track your progress each month to see how you are doing.

Why do you want to start a business?

If you want to start a business to escape the corporate grind, I hear ya. That’s exactly what I did.

However, if you still have a lot of debt, it might be more realistic to use your business profits to pay off debt first before you think about slinging your office chair out the window.

If you absolutely can’t stand your job, do you have the option to move companies or roles, just to make it a bit more bearable while you get your business up and running and debts paid off?

Don’t start a business as a way to run away from a soul-sucking office job. Starting a business is a rollercoaster and you need to like what you are doing or you will be getting off that ride pretty quickly!

There are other alternatives to starting a business if you need to change career or have a break.

How to reduce the risk of starting a business

If you decide to go ahead with your business, there are ways to reduce the risk so that you don’t add any more debt to the pile!

Reduce your expenses

Although this seems like an obvious one, until you actually start going through bank statements and categorising what you spend, money will slip through the cracks.

The only way to get control of your money is to truly understand what you spend month to month.

The key is to decide whether what you are spending on is more important than paying off debt or starting a business.

Take eating out, for example, you may think you spend very little on meals out.

A sandwich here and a muffin there mounts up to a lot more than you thought though!

You can then make the decision to stop buying food outside the home. Starting a business is more important to you than convenience food!

Reducing your expenses means you can immediately increase debt payments reduce the risk of starting your business.

The less you spend, the less you have to make.

Other ideas to reduce expenses:

  • Move to a cheaper property or area (Yikes! Also, make sure you understand moving costs before you do this.)
  • Take staycations rather than going away for a break
  • Meal plan to reduce food waste
  • Eat less meat (I love using The Modern Way to eat by Anna Jones, it’s the only veggie cookbook I have found that is consistently yummy).

Once you have your monthly expenses laid out in front of you, you can go crazy on the google finding ways to save!

Just make sure you focus on your biggest expenses that will make the most impact.

Start with a cash cushion

Once you have reduced your expenses, you can also start building a cash cushion in case of emergencies.

Even though you will (most likely!) still have a full-time job, unexpected things come up and you don’t want to be using the credit cards again.

There seems to be an argument going on around the internet about whether you should build a cash cushion (emergency fund) or pay off debt first.

Motley Fool (huge money site) argues for saving your emergency fund first.

Start your business without increasing your debt

If you’ve decided to go for it, you need to work out how your business is going to cost to start.

Firstly, you’ll need to list out all of the things you think you need to start your business.

I say think you’ll need as you may find you can start perfectly well without the ‘essentials’.

Make sure you question each item on the list, don’t just accept that you need something because other people have said you do!

An example of this is a website. You don’t necessarily need a website to start a business.

If you are going to be talking to real people about your service or product, rather than using the internet to drive traffic, perhaps you don’t need a website yet?

One of the women from my ‘Real Women. Real Business.’ series started a virtual reality company with no online presence at all!

Once you have trimmed your list down to the absolute essentials, you can start going through each item and researching whether you can get it for free, or borrow it.

If you do feel you need a website, there are some fantastic free options. Wix and Weebly both have free plans.

I have personally built a simple website on Wix and it was very easy to use (not like WordPress *tears hair out*).

Just whatever you do, please, don’t get a business loan!!

My favourite resource for starting a business with no money is the Pop Up Business School, I attended one of their free 10-day workshops and it was truly amazing.

I don’t receive any money for saying that, that’s how good they are!

How to get the cash to start your business

If you want to make fast cash to pay off debt or build a start-up fund for your business, then sell your clutter.

This is exactly what I did when I wanted to make money quickly.

Sell clothes and shoes on eBay, music and CDs on Decluttr, sell books, electronics, ANYTHING you don’t need or use any more.

You’d be surprised what people will pay for things!

If you don’t have your own clutter to sell, why not offer to sell other people’s? There will be friends and family with attics or basements full of crap.

You could offer to help them clear it out and you’ll take their unwanted stuff away for free.

And finally,

Starting a business and paying off debt are two very personal things.

I am not a financial advisor so you will need to make your own decision on this. 

The good news is, once you do your net worth statement, make a clear debt pay off plan and make a list of what you need for your business, you are taking action.

You’ve taken ownership of your situation and made a plan to deal with it. No more burying your head in the sand.

Even if it takes months and years to get your debt paid off, you will be so glad you finally took action on it!


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About the Author

Hi, I am Laura. I set up the 'I Want My Life Back Project' after burning out in a corporate job. I quit in May 2017 and set about getting my life back. I now freelance 2 days a week, run this blog, manage my rental properties and am SO MUCH HAPPIER! All the content on this blog is to help you to get your life back too :-)