As the old adage goes, you have to spend money in order to make money. This is true in everything from playing Monopoly to opening a country club. But for small business owners, both newbies and veterans, taking on debt can be a scary proposition, especially in shaky economic times.

“Everybody knows of businesses that take on big loans to beautify the business right before they wind up going belly-up,” says Kenneth Horowitz. “The fundamental requirement of financing of any sort is knowing what the capital is that you need to operate the business. Then you have to make good decisions on where and how to get the financing. Doing that in a responsible way is essential.”

Horowitz, a certified public accountant and a graduate of Fairleigh Dickinson University, heads up a one-day course, “Taking on Debt for Growth — Why Borrow Money” at Mercer County Community College on Thursday, June 15, at 6:30 p.m. Cost: $40. Call 609-586-4800 for more information or visit

The workshop is part of a series of courses offered by the college on small business development. “We are hoping to attract entrepreneurs who are just at the beginning of building their own business, but the information is adaptable to those who already are running a business,” says Horowitz, who teaches accounting and auditing at MCCC, and also maintains a financial consulting business. His advice: “People need to have a healthy perspective on when they should limit their ventures to their own capital and when it’s an appropriate time to go out and borrow from others.”

With a background in small to mid-size business management, Horowitz recognizes that taking on debt can be a nerve-wracking, but necessary, move for many business owners. It is wise to know that borrowing can be a good idea at times, while at other times it is something to avoid like the plague. “Each person and each business is different,” he says. “The timing and the amount of borrowing are crucial elements for business owners.”

Taking on debt can be a choice that Horowitz says is similar to taking on a mortgage in order to own your own home. “By using an appropriate amount of debt, you allow yourself to acquire an asset that you otherwise couldn’t afford,” he says. “It’s the same in business. The judicious borrowing of funds allows business people to acquire money-making assets that they could not afford if they used only their own capital.”

And like personal debt, business owners need to be careful how much debt to take on. “It shouldn’t be an open-ended, borrow-as-much-as-you-can situation,” says Horowitz. “If you borrow too much and overextend that can create problems. But at the same time, if you don’t borrow enough then you are limiting yourself too much.”

When applying for loans, borrowers need to be well acquainted with the information lenders want to see, especially cash flow projections as illustrated by the business plan. “It is very important to have a good business plan at the outset, not only in terms of securing loans, but also in giving your business the best chance at being a success,” says Horowitz.

The business plan is kind of a back-end approach in that a business owner determines the assets required to get the business going. Those assets will then have to come from either the entrepreneur himself or from a lender. “Then you have to make an independent decision as to whether the expenditure is worthwhile at all, either from your own money or somebody else’s,” says Horowitz. “That is an important step that many people fail to fully understand.”

Here’s his advice on making the decision:

Plan to have a good business plan. A business plan will allow you to determine the capital that you need to operate your business. Knowing what the true cost of generating your revenue is at the outset, before taking on debt, can save you big headaches later on.

“It is necessary for the owner/operator to understand the actual numbers that operate his business,” says Horowitz. “It’s good to have a cold clear view of what you are getting into before you get into it.”

Educate yourself. Horowitz recommends that budding entrepreneurs take at least a half dozen different business courses in order to understand the big picture of successful business ownership. “That way you see that the pieces kind of fill in together,” he says.

Look ahead. Know how much a loan will actually cost you. “There are often a number of hidden costs that borrowers must pay in addition to the stated interest rates on the loans,” says Horowitz. “You don’t want to be surprised. Before making any decisions, make sure you know the true cost of what the loan will be.

Know thyself. Everyone has his own inner tolerance for how much debt he feels comfortable taking on. It is important to be aware of that side of your personality when making borrowing decisions.

“Everyone has a personal stomach for debt and business people are the same as the rest of the world,” says Horowitz. “Some are comfortable with a moderate debt to equity ratio. They have their mortgage and their regular obligations that they meet very well. Then there are other people who don’t spend anything. They may not have a lot, but they only feel comfortable living with everything paid up. Then there are those who constantly live on the financial edge.”

Some entrepreneurs max out as many credit cards as they can get their hands on to start a business in which they have great confidence. Others mortgage their homes without a second thought. These businesspeople say that they aren’t worried. They believe that, if worst comes to worst, they can start all over again — take a job or try another business. But anyone anxious about meeting existing obligations, funding the twins’ college costs, or having to downsize will want to be more conservative in borrowing to get a business going or growing.

Don’t be afraid of numbers. “You can’t lose by knowing the numbers of your business,” says Horowitz. “You may decide to take a loan or you may decide that you better not take a loan. Either way you are a winner, as long as you make these determinations in advance.”

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