The Growth Season Challenge—Activity 5: Use money to make money
Total time: 10 minutes
Jordan grew up in a proud family and learned how to work hard. But things changed when he worked in a restaurant where the owner rarely came in.
How was it that the person who did the least owned everything, Jordan wondered? When a retail space went vacant across the way, the owner and her friends went in on another restaurant. Then another. Jordan was struck by how unfair it seemed.
Why was the person doing the least making the most?
Money makes more money
Many people with an incredible work ethic fall into thinking that hours are the only thing they have to spend. Hard work is great. It is essential to running a business. But hard work alone doesn’t make money—using money to make more money does.
Jordan learned that the restaurant owner hadn’t even bought the first place with her own money. She’d borrowed. To buy the second, she borrowed against the first. This astounded Jordan. The idea of using negative money to make money was totally new. But it’s vital to understand if you want to get out of working in the business.
When you use money to make investments, that money is called “capital.” You can probably raise your own capital easier than you think—a three-year Small Business Administration loan for $100,000 might cost as little as $17,000.
Do you think you could use $100,000 to make more than $117,000 over three years? Now you’re thinking like an investor.
Raising capital isn’t the hard part. Knowing what to use it for is. Capital puts your credit at risk and means you owe money. Only do it when the risk outweighs the reward.
In other words, only place safe, smart bets.
Do not bet on dreams alone—yours or others’. Jordan learned the hard way. He raised capital to launch a food truck but when his cook quit, he became the cook. Jordan did what he knew and “paid” with his time. But he couldn’t keep up with the truck loan and had to go back to working in the restaurant.
If he’d had his CFO hat on, he might have thought about it this way:
Starting a food truck was risky because there were so many unknowns. Where would Jordan find customers? Could he source the right ingredients? What would a commissary cost? What licenses did he need? That was a lot of guesswork and many ways things could go wrong.
A better bet would have been to put money into someone else’s already profitable food truck, which years later, he did. He helped a small business buy a second truck. They started generating twice as much cash.
Now that is capital thinking.
Congratulations. You have just learned the secret to capital that puts you on par with the smartest bankers. Keep up that learning. Outsmart the game and realize that the real growth happens when you learn where to spend with capital, not with your time.
People who know to spend with money tend to read the fine print and:
- Compare loan rates
- Consolidate multiple loans into one
- Pay off loans early for a discount
- Build their credit score so loans cost less
If you've followed this story, you know what Jordan, food truck entrepreneur, wishes he had known.
Your one action today
Request a higher credit limit on your credit card:
Log into the credit card website and find that button or call support. While this action seems small, it’s a celebration of your newfound capital smarts. Because you know your credit score is based on how much extra “credit” you have available. You just increased the percentage credit you have available. Now loans cost less.
You might also consider refinancing a personal or business loan. Simply call the loan officer at the bank you already use and ask if you can send them your current loan documents for a quote for a better rate.
Not bad for 10 minutes’ work, huh?
Tomorrow, we review everything you’ve learned.
The Pilot Team
Would you recommend this course?
