Mark Perrault says the No. 1 problem for most startup businesses is easy to identify.
“It’s high fixed expenses,” said the financial advisor for Northwestern Mutual. “High variable expenses are one thing, but you can control some high fixed expenses.”
Chief among those, he said, is how big a space a business will occupy. It’s critical not to go too big too early.
“Space is for ego; rent is forever,” Perrault said. “It’s better to start small and expand rather than start big and have to scale back.”
Perrault acknowledged that most startups will incur debt, but said dealing with that debt is much like controlling finances at home. And paying off that debt involves discipline and dedication to the task.
Perrault said the challenge is finding confidence in the vision and remaining committed to paying off debt.
His impression is that many younger individuals aren’t that concerned about the debt they’ve accumulated.
“I talk about the psychology of debt, particularly with millennials — people who are 25 to 35 or 40 — because most of them haven’t experienced what their parents or grandparents did,” he said. “They haven’t had to sacrifice. Life’s gotten better and for them every day’s a holiday and every meal’s a banquet.
“We’re the Facebook generation. Everybody puts up pictures from their travels: ‘You too can enjoy this lifestyle.’”
But he warns against excess, and the method that usually pays for that lifestyle.
“Credit is so easy, and it’s an easy cycle to get into,” he said.
Perrault, a co-owner of Dunn Perrault & Associates, works predominantly with business owners and self-employed individuals. He attempts to train those with too much debt on how to eliminate it, and then how to keep from reverting to bad spending and financial habits.
“People view travel and leisure time as mandatory,” Perrault said. “Many people have a mortgage, health care, child care but travel-and-leisure has become a new line item for people’s discretionary income.”
Perrault suggests paying off higher interest debt first but often counsels clients to use what he calls the “move-the-needle effect.”
“If you pay student loans down from $100,000 to $60,000 it almost doesn’t seem real,” he said. “But if people pay off a small debt, it feels good to make it go away and move on to the next one.”
Northwestern Mutual’s 2017 Planning and Progress Study — an online survey of 2,749 adults in the United States — shows nearly half of those individuals with debt have balances in excess of $25,000. And that’s not counting mortgages. The average debt for those households is a whopping $37,300.
It’s easy to see how many of those people — 26 percent have personal debt higher than $50,000 and 15 percent more than $100,000 — can’t see a light at the end of the tunnel.
Of those surveyed, 36 percent expect to be in debt for the next six to 20 years, while another 14 percent say they’ll be in debt for the rest of their life.
Editor’s note: Read more about debt, both business and personal, in the June 9 edition of the Colorado Springs Business Journal.