Dave Says Time to Close Shop

My husband and I are taking your classes and following your plan. We own a roofing company. We offer six months, same as cash, and we accept credit cards. What are your feelings about our doing this? Does it make us hypocrites?

If I accepted credit cards, it would make me an absolutely huge hypocrite, but you don’t do what I do for a living.

If this bothers you, it might be a good time to search your heart and ask yourself if these practices are blessing your customers. If you conclude that they are not, and you decide to discontinue those financing deals, you’d better come up with some other marketing strategies. You will lose clients over such an unusual decision!

Of course you could still offer some of those kinds of deals while actively discouraging their use. You could tell your customers that if you were in their situation, you’d just save up for a few months and pay cash rather than using a credit card or other financing options. That way the decision is theirs. But how will they react to such an uninvited suggestion? The last thing you want to do is encourage more credit, but the next-to-last is to run good business off.

No, I don’t think you’re being hypocritical, Monique. You have some big decisions to make about the quality of your customer service, though. Ten years from now, you want to know you tried your best to do the right thing for them, and you’ll always want to know you’ve done the right thing for your business.

I opened by own business about six months ago, and it’s not growing at all. I’m a single mom, we receive no child support and my parents are helping us with all the bills. My biggest concern is the house. I bought it five years ago, and when I opened my business I did it with money from a home equity loan. What can I do?

The house is not the problem. You borrowed money to open a business, and that was no-no number one. You also have no savings – which is no-no number two – and now the business isn’t making a profit.

You need to close the shop and go find some work. The money you make at another job will determine whether or not you can stay in your home. If you’ve got a mortgage, home equity loan and business debts hanging over your head, the chances of this are slim. You probably need to consider moving into a small, inexpensive apartment for a while.

If you do this, get your debts paid off and your finances back in order, you might be able to purchase a house and give your company another shot in a few years. I know the idea of giving up your home and business is hurtful, but when you get cancer you have to cut deep enough to get it all. Gina, what you’ve got right now is financial cancer.

I own a small business that produces niche products. Lately, we’ve been getting calls from prospective customers who want to use our products in different ways. How do you advise handling an “outside the box” request?

Ask yourself three basic questions: Can the product be produced in the needed quantity for a fair price? Will it be something you’ll want to hang your reputation on? Do you really want to do this?

If you answer “yes,” additional questions arise. Can the product be used the way they want to use it? Must it be modified, and at what cost? Can you supply it on time?

I know I’m giving you questions, not answers, but in the end, providing a quality, functional product in a timely manner for a fair, profitable price is the key to a small business’ success.

An unusual request just might be a great entrepreneurial opportunity. It’ll probably take some work, because when great ideas show up they’re usually wearing work clothes. But do some research, and make the same basic manufacturing and economic decisions you would with a new item. Remember, this could open up a whole new market for you!

Dear Dave,

I use credit cards to pay for everything including groceries.
I pay off my balance every month. So why is it wrong to use OPM (other people’s money) to finance a roof or everyday items?
For the record, wouldn’t it be better to finance a roof than let it damage the larger investment of a house? That sounds like pennywise pound foolish to me.

NPCW

Dear Dave,

I am a board member of an $3-4 Trillion a year organization. We are currently borrowing $.40 of every dollar we spend. Should I resign from the board?

anonymous Congressman...

Good perspective. I've always believed that buying something on credit and spreading payments over a long period of time is perfectly reasonable when the purchase involves a capital asset instead of a recurring "operating" expense. Let's leave the whole issue of paying off a credit card every month aside, since if you use a credit card and pay it off in full then you're not really buying on credit at all. Using a credit card to pay for a new roof on the house is acceptable, as long as the interest rate is reasonable. Using a credit card to pay for a trip to Disneyland and then paying it off over 2-3 years is idiocy.

My rule of thumb is that paying off the cost of an asset over a long period of time is OK as long as the payment term does not exceed the life of the asset. Using a low-interest credit card or a home equity loan to pay for a new roof is fine, but only if the balance is paid off before the roof needs to be replaced again 15 or 20 years later. Taking out a 15-year home equity loan to buy a car that you only expect to drive for five years makes no sense at all, since you'll be paying it off for ten years after its useful life has expired.

Just my two cents here . . .

I do the very same thing with my Credit Card, pay it off, plus get the perks from the use of it. Nothing wrong with that, and DAVE is just wrong.

Nothing wrong with Credit Cards, plenty wrong with many users. Kinda like guns don't kill people, people do.

I appreciate Dave in stearing people to finally get their lives in order and out of debt, but he is not to be worshipped.

Dear Dave,

I'm making a lot by lending to the irresponsible organization mentioned in the previous letter. Now here's the trick - I don't actually need money to lend because I can create it out of this air. Should I stay in this business if people start following your silly ideas about not borrowing irresponsibly?

Chairman Ben B.

Dear Dave,

I’m the boss of two of your previous letter-writers above. I don’t really give a rip about what they’re doing financially as long as I can maintain my free housing, quality eats, guaranteed tee times, and frequent vacations.

A lot of folks want me to leave this gig - what’s the best way I can hold on to it (by the way, side-stepping legal niceties in order to do so need not be an impediment).

Best,

Barry S.

Post #3: Good one! Post #6: Even better.

Now let me try.

Dear Dave:
I spent about a billion dollars to get a job which pays $400,000 per year. However, the Perks are great. I get to go on exotic vacations whenever I feel like it and the people who lent me the money to get this job are getting a great return as I bleed the organization dry which hired me in order to pay them off.

Now, some of the people who hired me are starting to wake up and understand what is really going on. If too many of them do, I could be out of a job. But my core supporters tell me not to worry. The organization still has money to bleed off to keep buying their loyalty. I know that, at some point, the money will run out and I don't want to be on center stage when TSHTF. What should I do?

You have to realize that 95% of the people Dave Ramsey deals with are financial basket cases. If they were the type of people who use a credit card responsibly they would not be seeking his help in the first place.

To tell a spendthrift to use a credit card wisely is like telling an alcoholic to drink in moderation. It is just safer for that person to abstain completely.

To your point, Dave is not to be worshipped but his advise is typically spot on for the financially challenged. Basically, his advice will never get you burned.

"""""but his advise is typically spot on for the financially challenged. Basically, his advice will never get you burned."""""

I agree, and I do appreciate him for doing this, many are getting the help they need. It just amazes me that so many need that advice, I guess I was just born old and knew the rules early. Or it was working in a Finance Company while in High School, where I learned how credit works, my first job.

Then too my dad was very frugal with his money, back then it was "if you don't have the cash to pay for it, you don't need it."

I remember that first job, and while walking to work, I passed a high dollar shoe store. I spotted a beautiful pair of high heels that I desired, finally asked the price, $25.00. WOW!!! all that much????, I made 50cents an hour and figured just how many hours I would have to work to buy those shoes, I flushed my love for those shoes very quick. lol, and I have always carried that idea forward.

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