Rich Chiropractor, Poor Chiropractor – TC006

In this episode, I share the lessons I learned that literally transformed my life. What the rich think about money that the poor do not, and vice versa.

Resources

Rich Dad Poor Dad – The one book that I can point to that literally changed my life. Author Robert Kiyosaki developed his unique economic perspective through exposure to a pair of disparate influences: his own highly educated but fiscally unstable father, and the multimillionaire eighth-grade dropout father of his closest friend. The lifelong monetary problems experienced by his “poor dad” (whose weekly paychecks, while respectable, were never quite sufficient to meet family needs) pounded home the counterpoint communicated by his “rich dad” (that “the poor and the middle class work for money,” but “the rich have money work for them”). Taking that message to heart, Kiyosaki was able to retire at 47. Must Read!

Awaken the Giant Within: How to Take Immediate Control of Your Mental, Emotional, Physical and Financial – Anthony Robbins, the nation’s leader in the science of peak performance, shows you his most effective strategies and techniques for mastering your emotions, your body, your relationships, your finances, and your life. The acknowledged expert in the psychology of change, Anthony Robbins provides a step-by-step program teaching the fundamental lessons of self-mastery that will enable you to discover your true purpose, take control of your life and harness the forces that shape your destiny.

Damon Hendrickson

First of all I would like to say i love what you do here, there is a great amount of experience and wisdom in your teaching but today i just cant say i agree. I have been a regular listener and thus far have agreed with the majority of your teachings. The one thing that i refuse to accept is the idea that “good debt” is essential to a thriving chiropractor. I do not believe that advocating the use of debt of any kind will benefit our profession. Dave Ramsey is a very wise man, to acquire debt is to acquire risk. Like yourself i too believe firmly that with freedom comes an inherent amount of both risk and responsibility, however, that risk must me mitigated at all costs. There are undoubtedly ways of acquiring great amounts of wealth using debt but the immense risk involved is one of the many reason almost half of all small businesses fail many of which fail due to high levels of “good debt”.

The Forbes 400 is a list of the richest 400 people in America as rated
by Forbes magazine. When surveyed, 75 percent of the Forbes 400 said the best way
to build wealth is to become and stay debt free. Walgreen’s, Cisco,
Microsoft, and Harley-Davidson are run debt free. If Walgreen’s, Cisco, Microsoft, and thousands of other successful business owners can do it so can you.
- thrivingchiro
  
  Thanks for your kind words and also for engaging in the discussion Damon!
  
  I hope I did not give the impression that debt was “essential” to become a thriving chiropractor. I would argue, however, that the belief that all debt is evil is a self limiting belief and one that restricts the growth of most entrepreneurs.
  
  Actually, you underestimate the numbers. Half of small businesses fail within five years and at ten years that number grows to 2/3. Outside of the obvious reasons for failure (e.g., inept management, having a bad idea to begin with, etc.) all businesses must survive the cash flow “valley of death,” so called because a startup’s cash flow tends to be negative for a time before becoming positive. If a business does not have enough cash reserves to survive this period, they will fail. These are the big three reasons, excess GOOD debt is rarely, if ever, a primary causative factor in business failure.
  
  Corporations that operate debt free, and I would add the biggest debt free company in the word to your list — Apple, have another liability in the form of shareholder’s equity. That is, millions of people have given the company money to purchase a sliver of the business and those shareholders have assumed the risk. Companies that do not pay out good dividends must reward their shareholders with asset value growth or the shareholders will sell their shares and move on to another investment. If their are no market buyers for the stock, then the company must/will buy the stock back (this applies to exchange traded stocks and I’m over-simplifying this quite a bit for the sake of discussion). This is an enormous risk for those companies and explains the constant demand to show returns on their quarterly and annual reports.
  
  But even more fundamental is the fact that all of these companies operate debt free, but NOT liability free. They maintain millions if not billions in leases on property and equipment.
  
  I’ve heard Dave Ramsey discuss the point about the Forbes 400. What he fails to mention though is that in the survey they were talking PERSONAL wealth, and in that respect he is right. However, show me ONE person on this list who did not inherit their wealth, that became wealthy without utilizing debt — or — selling shares of their company.
  
  Ramsey is a wise man and as I think I said, for the vast majority of people his teachings are spot-on. But as somebody who has taken his entré-leadership series for entrepreneurs, I can assure you, debt is discussed and he would mostly agree with my position.
  - Damon Hendrickson
    
    I am a huge supporter of the concept of “standing on the shoulders of giants” With that in mind I really appreciate your book recommendations. I picked up rich dad poor dad last night on amazon and have read all but the last fifty or so pages. Fabulous recommendation! For anyone else following this podcast Rich Dad Poor Dad & the E-myth are wonderful books.
    
    Your response is exactly why I love your podcast. I appreciate the well informed points you make. Especially the idea of transferring risk from corporation to share holders, I never thought about it that way.
    
    I believe that on the topic of personal debt we would agree almost entirely. I have and will continue to run my household debt free, cars and home purchase included, however, I think the major factor in the discussion is the differentiation of personal debt and business debt. My main concern with the use of large amounts of business debt is obviously the leveraging of risk v.s the working capital required to grow a business. During that initial time of negative cash flow I would think that the last thing a new business needs is the added risk of debt. So the question is not “should debt be used” but “when can debt be used such that the risk does not outweigh the benefits”?
    
    I completely agree that an established business can use small amounts of debt to grow or invest back into the company but for a newly formed business, say in their first six months, don’t you think that using debt entirely to fund a business start up is a huge risk? If you are one of the near 50% that fail in the first few years you are then then left with no business income and a large amount of now personal debt. You make a great point about debt not being the only liability, business inherently comes with liability in many forms. Assuming debt is used for a start up where would you personally draw the line as far as good debt is concerned? Would you be willing to give some examples of debt you used during your start up and how that has effected your business growth positively or otherwise?
    
    I have read all of Daves books including entre-leadership but have never attended any of his seminars in person. What did you think? Would you recommend them? As far as Ramsey is concerned you also have to take into account the fact that as a self proclaimed debt free symbol, Dave could never publicly come out and support any type of debt, regardless of his business views because it would been seen as hypocritical by the media. I would be very interested to know how recently apple has become “debt free” and in what ways if any debt was used to grow their business originally. I am very thankful for your wisdom and teaching keep up the good work!
    - thrivingchiro
      
      I’m glad you are enjoying the book (“Rich Dad, Poor Dad”). It is truly life changing for the right person.
      
      The analysis needed to evaluate the risk:benefit of debt is not simple, but it should be well within the analytical skill set of anybody who would entertain the idea of starting their own business. Using industry normative data informed by geographically targeted inputs, one should be able to come up with a best/worst case scenario with regards to revenue and expenses. Using this model, the amount of debt that one could reasonably absorb within the available cash flows becomes self-evident. There really is no exact answer, its a matter of probabilities.
      
      Is using debt entirely to fund a new business a huge risk? I’m not sure… depends. I used nearly 100% debt to fund the startup of almost all the businesses I’ve owned. Never had a problem. But I’ve also been very careful about the ventures I’ve pursued. It seems to me that the problems with failing businesses lie not with their indebtedness but with their business model or management skill. For example, the poor souls that open up restaurants in the same locations that ump-teen other restaurants (including national chains with huge marketing budgets) have opened and failed. These entrepreneurs could have zero debt at startup and I will bet you 100 to 1 that they will be out of business in 5 years.
      
      However, if you are buying a business that has a long track record of positive cash-flows sufficient to cover your debt service, and your management/sales skills are on par with the departing owner(s), then your risk is virtually nil, even if you fund the purchase and the working capital 100% with debt. I have done exactly this and been quite successful on multiple occasions. Doing this provides the investor entrepreneur nearly an infinite positive rate of return. That beats 10% by a VERY wide margin. This is how people get VERY rich.
      
      Not everybody has the stomach for this kind of risk, which is why in this episode I discuss the freedom/security coin. Some people are wired one way, others the other. No shame in either, but make sure you know your tendencies and play to your strengths. Also, make sure you know the limits of your wiring: Freedom people should learn how to very accurately assess risk and have people there to pull the reigns back when necessary; Security people need to very accurately assess opportunity and have people there to kick them into action.
      
      I like Ramsey. His philosophy is definitely geared for the security side… Kiyosaki is geared for the freedom. Ideally you’d learn from both and use this breadth of knowledge to inform your own strengths.